Group 2 On August 1, 2022, AtrasZhinigang Manufacturing Co. received P4,200,000 from The STUVWXYZ Corporation for the development of a vaccine in a period of two years. The amount received was lodged to Deferred R & D revenue (liability method). On December 31, 2022, the company accountant prepared the covering adjusting entry to update the liability and revenue accounts Prepare the correcting entry (if any) if the adjusting entry made by the accountant on December 31, 2022 is as follow: a. Deferred R & D Revenue 2,100,000 R&D Revenue 2,100,000 b. R& D Revenue 875,000 Loss on R & D amortization 3,325,000 Deferred R & D Revenue 4,200,000 c. Deferred R & D Revenue 3,325,000 R&D Revenue 875,000 Gain on R & D 2,450,000 d. Investment in R &D 3,325,000 Deferred R & D Revenue 3,325,000 e. R& D revenue 2,100,000 Deferred R & D revenue 2,100,000 **Note: Use 24 months for the distribution of Revenue

Group 2 On August 1, 2022, AtrasZhinigang Manufacturing Co. received P4,200,000 from The STUVWXYZ Corporation for the development of a vaccine in a period of two years. The amount received was lodged to Deferred R & D revenue (liability method). On December 31, 2022, the company accountant prepared the covering adjusting entry to update the liability and revenue accounts Prepare the correcting entry (if any) if the adjusting entry made by the accountant on December 31, 2022 is as follow: a. Deferred R & D Revenue 2,100,000 R&D Revenue 2,100,000 b. R& D Revenue 875,000 Loss on R & D amortization 3,325,000 Deferred R & D Revenue 4,200,000 c. Deferred R & D Revenue 3,325,000 R&D Revenue 875,000 Gain on R & D 2,450,000 d. Investment in R &D 3,325,000 Deferred R & D Revenue 3,325,000 e. R& D revenue 2,100,000 Deferred R & D revenue 2,100,000 **Note: Use 24 months for the distribution of Revenue

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter16: Accounting Periods And Methods

Section: Chapter Questions

Problem 29P

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Case 3-73 Recognition of Service Contract Revenue Zac Murphy is president of Blooming Colors Inc. which provides landscaping services in Tallahassee, Florida. On November 20, 2019, Mr. Murphy signed a service contract with Eastern State University. Under the contract, Blooming Colors will provide landscaping services for all Of Easterns buildings for a period of 2 years beginning on January l, 2020, and Eastern will pay Blooming Colors on a monthly basis beginning on January 31, 2020. Although the same amount of landscaping services will be rendered in every month, the contract provides for higher monthly payments in the first year. Initially, Mr. Murphy proposed that the revenue from the contract should be recognized when the contract is signed in 2019; however, his accountant, Sue Storm, convinced him that this would be inappropriate. Then Mr. Murphy proposed that the revenue should be recognized in an amount equal to the cash collected under the contract. Again, Ms. Storm argued against his proposal, indicating that generally accepted accounting principles (GAAP) required recognition of an equal amount of contract revenue each month. Required: 1. Give a reason that might explain Mr. Murphys desire to recognize contract revenue earlier rather than later.
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