Joan Holtz Case 5-3

994 Words Nov 23rd, 2010 4 Pages
ACCT101 project Case5-3

1. Electric utility bills
Method 1:
As everyone knows, the electricity meters can be read every month. Therefore, in December the company will know the electricity usage of the former 12 months including that of December last year. And the usage of electricity in December this year can be included in the next year’s revenue.
Method 2:
Strictly speaking, the revenue recognized in method 1 is not earned in THIS YEAR. through the method of estimating the electricity usage in December this year, added by the actual usage of former 11 months, we can get record the revenue and then do some adjustment in the next year.

2. Retainer fee none of the $10,000 should be counted as revenue in 2006.
In accordance with
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Account payable 500
Cash 500

American Express should record the journal entries:
Cash 500
Account receivable 500

8. Product repurchase agreement
Manufacturer A has no revenue in 2006, for it promised to repurchase the merchandise from Wholesaler B at the moment A sold them in December 2006, even though the repurchase happened in 2007. A also agreed to repurchase merchandise with higher price later on. This is a financing activity but not the operating activity. $100,000 of the payment should be considered as notes payable, and the agreed amount of repurchase less $100,000 is interest payable at mature date.

9. Franchises
The answer is no
The revenue should be recognized after the national company provide the relevant services and conduct the obligations to the franchise, such as the right of using their well-known name, one-week initial training course, national wide referral system and various marketing and management aids.

If the revenue is recognized in the year of signing agreement, after the market saturation, the national company will not recognize any revenue from franchises, i.e. lose 25% of

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