Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Question
Chapter 2, Problem 6C
To determine
Determine the total revenue for CVS and S Airline Company from the corresponding income statement, and explain how the nature of business will affect the revenue recognition for prescription to fill the CVS against S Airline tickets. Determine when the cash is received and revenue earned for each company.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The realization principle determines when a business should recognize revenue. Listed next
are three common business situations involving revenue. After each situation, we give two
alternatives as to the accounting period (or periods) in which the business might recognize
this revenue. Select the appropriate alternative by applying the realization principle, and
explain your reasoning.
a. Airline ticket revenue: Most airlines sell tickets well before the scheduled date of the
flight. (Period ticket sold; period of flight)
b. Sales on account: In June 2011, a San Diego–based furniture store had a big sale,
featuring “No payments until 2012.” (Period furniture sold; periods that payments are
received from customers)
c. Magazine subscriptions revenue: Most magazine publishers sell subscriptions for
future delivery of the magazine. (Period subscription sold; periods that magazines are
mailed to customers
The realization principle determines when a business should recognize revenue. Listed next are three common business situations involving revenue. After each situation, we give two alternatives as to the accounting period (or periods) in which the business might recognize this revenue. Select the appropriate alternative by applying the realization principle, and explain your reasoning.a. Airline ticket revenue: Most airlines sell tickets well before the scheduled date of the flight. (Period ticket sold; period of flight)
The following are brief descriptions of two companies in different lines of business.
1. Company A is a retailer. It makes sales on a daily basis for cash and on credit cards.
2. Company B is a health spa. It has recently signed contracts with numerous individuals to use its facilities over a two-year period. The contract price was collected in advance.
Describe when revenue should be recognized by each company. If revenue should not be recognized at the time of sale, indicate what method should be used to recognize the revenue. Justify your decision.
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
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- What Would You Do? You are responsible for preparing all of the journal entries for Regional Financial Services. You have correctly prepared the following entry for financial services provided on December 15: Your boss has asked you to change the date from December 15 to January 15 so that the business’s profit, and thus taxes, would be lower. Are you allowed to do this? What is your response to your boss? How should you handle this situation?arrow_forwardFrom the following list, identify which items are considered original sources: A. prepaid insurance B. bank statement C. sales ticket D. general journal E. trial balance F. balance sheet G. telephone bill H. invoice from supplier I. company sales account J. income statementarrow_forwardCodification Situation You are conducting an accounting research project for your boss. Your boss has asked you to determine the appropriate U.S. GAAP that specifies how your company should recognize revenues from the sales of products in a retail store. Your boss is confused because most customers pay cash, but some customers purchase on credit terms, and pay in cash 30 days later. Your manager also wants you to determine the GAAP guidance for how revenue should be recognized in income. Your manager has a lot of knowledge and experience in accounting and has heard about, but has never used, the FASB Accounting Standards Codification system. Directions Use the FASB Accounting Standards Codification system to conduct the research your manager has assigned to you. Use the Codification to determine how to recognize revenue from retail sales, including the right to return. Be prepared to show your manager the specific FASB ASC references that provide the appropriate guidance. Also prepare a brief memo explaining to your manager the different levels of the Codification and how to use the Codification system.arrow_forward
- Each of the following is an independent situation that relates to the recognition of revenue: a. Collection of a fare by an airline when the passenger makes a reservation b. Receipt of payment for delivery services prior to the delivery of the goods c. Sale of an annual pass to a theme park d. Construction of a home in a subdivision prior to a buyer being identified e. Payment of insurance coverage at the beginning of the coverage period Required: For each situation, indicate if the company should recognize revenue over time or at a point in time. Also, indicate the companys performance obligation and be as specific as possible as to the time period it is satisfied.arrow_forwardAstrid Transportation Inc., headquartered in Atlanta, Georgia, uses accrual-basis accounting and engaged in the following transactions: billed customers $2,407,650 for transportation services collected cash from customers in the amount of $1,381,975 purchased fuel supplies for $1,333,800 cash used fuel supplies that cost $1,305,540 employees earned salaries of $292,600 paid employees $280,300 cash for salaries Determine the amount of sales revenue and total expenses for Astrid's income statement. Sales Revenue $ Total Expenses $arrow_forwardPatrick Financial Services, an accounting firm, specialises in providing accounting and taxation work for dentists and doctors. You have been provided with financial information relating to the firm in appendix 1. In appendix 2, you have been provided with non-financial information which is based on the balanced scorecard format. Appendix 1: Financial information Current year Previous year Turnover (£000) 945 900 Net profit (£000) 187 180 Average cash balances (£000) 21 20…arrow_forward
- Expeditions Incorporated and BookItNow compete as online travel agencies. The following amounts were reported by the two companies in the three months ended June 30, 2019. (in millions) Net Income Total Assets Total Liabilities Total Revenues Expeditions Incorporated $ 1,180 $ 9,250 $ 6,600 $ 6,730 BookItNow 3,220 8,730 4,470 7,960 Required: Calculate each company’s net profit margin expressed as a percent. Which company has generated a greater return of profit from each revenue dollar?arrow_forwardThe following account balances were included in the trial balance of Ayayai Corporation at June 30, 2023: Sales revenue Cost of goods sold Salaries and wages expense (sales) Sales commission expense (a) Advertising expense (sales) Freight out Entertainment expense (sales) Telephone and internet expense (sales) Depreciation of sales equipment Repairs and maintenance expense (sales) Miscellaneous expenses (sales) Supplies expense (office) Depreciation expense on office furniture and equipment $1,837,150 1,061,770 53,460 99,400 29,230 21,900 15,420 9,930 5,880 6,400 5,315 3,950 7,350 Telephone and Internet expense (office) Salaries and wages (office) Supplies expense (sales) Repairs and maintenance expense (office) Depreciation understatement due to error-2021 (net of tax of $3,300) Miscellaneous expense (office) Dividend revenue Interest expense Income tax expense Dividends declared on preferred shares Dividends declared on common shares $2,920 8,020 5,450 9,830 19,600 7,800 38,800…arrow_forwardShow how the below transactions affect the financial position of the business as represented by A = E + L. You need to clearly indicate whether the element has increased or decreased and provide the relevant amount and account that would be affected.EG. The business pays R6 333 per month for the rental of some business premises. All rentals were paid in cash during the year. No. A = E + L Eg. -75996 Bank (6333 x 12) - 75996 Rent Expense Please use format of table above for the below transactionsThe following transactions occurred in the business during the year ended 31 December 2020: 1. The owner deposited R105 000 cash into the business’s bank account on 1 January 2020.2. The business bought R450 000 worth of inventory from various suppliers during the year. 80% of these purchases were on credit and the remaining 20% were paid for in cash.3. During the year the business paid R96 900 cash in operating costs. These costs related to goods and services that had all been…arrow_forward
- 1. Suppose a business receives a bill for services rendered from one of itssuppliers. The business will pay the supplier next month. When the businessreceives the bill from its supplier, explain how this affect the accounting equation in terms of increasing or decreasing assets, liabilities, or owner’s equity? 2. Suppose equipment is sold for cash in an amount equal to the cost of theequipment recorded on the books. How does this sale affect the accountingequation in term of increasing or decreasing assets, liabilities or owner’s equity?arrow_forwardListed below are the current Accounting Assumptions and Principles Economic Entity Assumption Monetary Unit Assumption Historical Cost Principle Going Concern Assumption Revenue Recognition Principle Full Disclosure Principle Time Period Assumption Matching Principle Required: For the following situations, identify whether the situation represents a violation or a correct application of GAAP, and which assumption/principle is applicable. a. In May 2021, Regent Corporation recorded as revenue $5,000 received in advance from a customer for a job that would be completed in June 2021. Violation: (Yes/No) Applicable Assumption/Principle: b. Sally Maze made sure to keep her personal expenditures separate from her marketing company books.…arrow_forwardSuppose a business receives a bill for services rendered from one of itssuppliers. The business will pay the supplier next month. When the businessreceives the bill from its supplier, explain how this affect the accounting equationin terms of increasing or decreasing assets, liabilities, or owner’s equity?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College Pub
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub
College Accounting (Book Only): A Career Approach
Accounting
ISBN:9781337280570
Author:Scott, Cathy J.
Publisher:South-Western College Pub
Revenue recognition explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=816Q6pOaGv4;License: Standard Youtube License