Concept explainers
Requirement – 1
Performance obligation:
Performance obligation is the promise made by the seller to supply the goods and service to the customer on or before the contract.
Transaction price:
Transaction price refers to the price that is paid at the time of delivery or after delivery of goods and/or services. Specific situations affecting the transaction price are as follows:
- Variable amount of consideration and the restriction on its recognition.
- Rights for sales return
- Whether the seller is acting as a principle or an agent
- Time value of money
- Payments by the seller to the customer
Deferred revenues:
Collection of cash in advance to render service or to deliver goods in future is known as unearned revenues. These unearned revenues are considered as liabilities until they are earned. For the portion of rendered services or delivered goods, revenues would be recognized by way of passing an
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
To determine: The amount of recognized revenue of M Today newspaper.
Requirement (2)
The number of performance obligations exist in the contract.
Requirement (3)
To prepare: The
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- Problem 5-22 Perpetuities (LO3) A local bank advertises the following deal: "Pay us $100 at the end of each year for 10 years and then we will pay you (or your beneficiaries) $100 at the end of each year forever." a. Calculate the present value of your payments to the bank if the interest rate is 8.25%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the present value of a $100 perpetuity deferred for 10 years if the interest rate is 8.25%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)arrow_forwardQ1. Toselli Animation plans to offer its employees a salary enhancement package that has revenue sharing as its main component. Specifically, the company will set aside 1% of total sales revenue for year-end bonuses. The sales are expected to be $5 million the first year, $5.5 million the second year, and amounts increasing by 10% each year for the next 5 years. At an interest rate of 8% per year, what is the equivalent annual worth in years 1 through 5 of the bonus package? (Do not use excell)arrow_forwardQ5: Calculating Present Values: Imprudential, Inc., has an unfunded pension liability of $415 million that must be paid in 20 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 5.2 percent, what is the present value of this liability? (Hint: Use Q2 excel sheet to compute present value)arrow_forward