Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Chapter 2, Problem 2C
To determine
Explain whether the super markets recording the rebate is the correct way and determine that the answer will change the net income.
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Fahey Company sells Stairmasters to a retailer, Physical Fitness, Inc., for $2,000,000. Fahey has a history of providing price concessions on this product if the retailer has difficulty selling the Stairmasters to customers. Fahey has experience with sales like these in the past and estimates that the maximum amount of price concessions is $300,000.
Instructions
a. Determine the amount of revenue that Fahey should recognize for the sale of Stairmasters to Physical Fitness, Inc.
b. According to GAAP, in some situations, the amount of revenue recognized may be constrained. Explain how the accounting for the Stairmasters sales might be affected by the revenue constraint due to variable consideration or returns.
c. Some believe that revenue recognition should be constrained by collectibility. Is such a view consistent with GAAP? Explain.
An accounting intern for a local CPA firm was reviewing the financial statements of a client in the electronics industry. The intern noticed that the client used the FIFO method of determining ending inventory and cost of goods sold. When she asked a colleague why the firm used FIFO instead of LIFO, she was told that the client used FIFO to minimize its income tax liability. This response puzzled the intern because she thought that LIFO would minimize income tax liability. Required: What would you tell the intern to resolve the confusion?
In response to how the sales incentives might be contributing to falling profits despite growing sales, Chan Company’s controller has produced the following information on last year’s sales to two customers who purchased a variety of products from the company: Customers Carlson Donner
Sales ……………………………………………….......…………… $450,000 $400,000
Cost of goods sold ……………………………………....…. $180,000 $80,000
MSDA expenses, excluding sales commissions . $320,000 $65,000
Required
(a) Which customer is more profitable for the company?
(b) Compare a sales incentive scheme that pays 2% of sales revenue to an incentive scheme that pays 4% of customer profit.
(c) How will each scheme affect salespersons’ desire to…
Chapter 2 Solutions
Principles of Accounting
Ch. 2 - A company incurs a cost for a part that is needed...Ch. 2 - Prob. 2DQCh. 2 - Prob. 3DQCh. 2 - Prob. 4DQCh. 2 - How are assets and expenses related, and why are...Ch. 2 - Prob. 6DQCh. 2 - Prob. 7DQCh. 2 - Prob. 8DQCh. 2 - Tell whether each of the following accounts is an...Ch. 2 - Prob. 2SE
Ch. 2 - Prob. 3SECh. 2 - Prob. 4SECh. 2 - Prob. 5SECh. 2 - Prob. 6SECh. 2 - Prob. 7SECh. 2 - Prepare a general journal form like the one in...Ch. 2 - Prepare three ledger account forms like the one in...Ch. 2 - Prob. 10SECh. 2 - Prob. 11SECh. 2 - Prob. 12SECh. 2 - Which of the following events would be recognized...Ch. 2 - You are given the following list of accounts with...Ch. 2 - The following ledger accounts are for Afocentric...Ch. 2 - Prob. 4EACh. 2 - The accounts that follow are applicable to Harolds...Ch. 2 - Prob. 6EACh. 2 - Prob. 7EACh. 2 - Prob. 8EACh. 2 - After recording the transactions in E6A, prepare a...Ch. 2 - The list that follows presents Shah Companys...Ch. 2 - Which of the following errors would cause a trial...Ch. 2 - Prob. 12EACh. 2 - Record the transactions in E6A in the general...Ch. 2 - Prob. 14EACh. 2 - Prob. 15EACh. 2 - Prob. 16EACh. 2 - Highland Design Company creates radio and...Ch. 2 - The following accounts are applicable to Georges...Ch. 2 - Jennifer Lopez opened a school for administrative...Ch. 2 - Sid Patel bid for and won a concession to rent...Ch. 2 - Nordtown Company is a marketing firm. The companys...Ch. 2 - Prob. 6APCh. 2 - The following accounts are applicable to Raymonds...Ch. 2 - Prob. 8APCh. 2 - David Roberts began an upholstery cleaning...Ch. 2 - Prob. 10APCh. 2 - Prob. 1CCh. 2 - Prob. 2CCh. 2 - Prob. 3CCh. 2 - Prob. 4CCh. 2 - Prob. 5CCh. 2 - Prob. 6CCh. 2 - Prob. 7C
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