AFM391 Lecture Notes - Lecture 5: Stax Records

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lilacmouse857

28 Jun 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM391

Professor

Robert Ducharme

For unlimited access to Class Notes, a Class+ subscription is required.

These collective obligations are referred to as multiple deliverables

○

The liability recognized should reflect the portion of the transaction price allocated to the

future performance obligation. Transaction price is allocated based on the relative

observable stand

alone sales price of the performance obligations

○

If the stand-alone selling price is not directly observable, the estimate should factor the

likelihood that the option to the material right might not be exercised

○

Transaction price be adjusted to incorporate the effects of the time value of money if the

contract includes a significant financing component, but customer loyalty programs are

exempt from this requirement

○

Factors to be considered when determining the amount of the liability to be recognized for

unsatisfied (means haven't performed yet, not meaning bad performances for customers)

performance obligations include:

•

Awards supplied by the entity: the transaction price must be allocated to the performance

obligation in accordance with the guidance in IFRS 15. see exhibit 11

13 and 11

○

Third party awards:

the enterprise records the full transaction price as revenue at the time

of sale. The enterprise contemporaneously recognizes an expense for the cost of purchasing

the points from the third party. The reporting entity has satisfied both performance

obligations

○

Choice of awards:

ignored.

○

Once the stand

alone value of the performance obligations has been estimated, the journal

entry to record the sale can be made

○

The hotel expects 40,000 points to be redeemed so the value per points is $50,000/ 40,000

points = $1.25/point

○

In 2019, 30,000 x $1.25 = $37,500.00 $37,500

○

The accounting for loyalty programs differs depending on who supplies the awards

•

AFM 391 Page 9

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Document Summary

These collective obligations are referred to as multiple deliverables. Factors to be considered when determining the amount of the liability to be recognized for unsatisfied (means haven"t performed yet, not meaning bad performances for customers) performance obligations include: The liability recognized should reflect the portion of the transaction price allocated to the future performance obligation. Transaction price is allocated based on the relative observable stand-alone sales price of the performance obligations. If the stand-alone selling price is not directly observable, the estimate should factor the likelihood that the option to the material right might not be exercised. Transaction price be adjusted to incorporate the effects of the time value of money if the contract includes a significant financing component, but customer loyalty programs are exempt from this requirement. The accounting for loyalty programs differs depending on who supplies the awards.

Related Questions

Anderson Accounting Services LLC provides accounting and tax preparation and consulting services. Sometimes customers only wish to have financial statements and/or tax returns prepared. Sometimes customers bundle accounting and tax preparation with consulting services (to be provided over a period of time). Sometimes customers only wish to have consulting services provided over a period of time. Because Anderson is a service firm there is no cost of goods sold associated with their services.

Customer is Civic Corporation	1
Tax consulting begins on November 1st and runs through the next April	11/1/X7
Date of contract	11/1/X7
Length of consulting services	6 months	months
Tax return preparation occurs over the period February through April of	20X8
Length of tax prepartion	3 months
Price of tax preparation to be allocated over the return preparation period	$ 2,000	stand alone price
Price of consulting services to be allocated over consulting period	$ 5,000	stand alone price
Customers are charged a lesser amount as follows for both tax and consulting	$ 6,000
Anderson Accounting Services LLC's current year end	12/31/X7
Customers pay at the contract date for BOTH the consulting and tax preparation services.

What are the performance obligations in the contract?

Tax preparation services

Tax preparation services and tax consulting services

Unable to determine

D.Tax consulting services

QUESTION 3

Determine the transaction price that should be allocated to the consulting services.

	A.	$4,286
	B.	$1,714
	C.	$1,429
	D.	$4,571

QUESTION 4

Calculate the total revenue that should be recognized in the current accounting period.

	A.	$4,571
	B.	$1,714
	C.	$1,429
		D. $4,286

QUESTION 5

What is the total amount in the deferred revenue account(s) at the end of the current accounting period?

	A.	$1,714
	B.	$4,571
	C.	$4,286
	D.	$1,429

QUESTION 6

What is the total amount of revenue that should be recognized in the NEXT accounting period period?

	A.	$1,714
	B.	$4,286
	C.	$1,429
	D.	$4,571

QUESTION 7

The following journal entry has what impact on the income statement?

Debit Cash XXX

Credit Deferred Revenue XXX

	A.	No impact
	B.	Decrease
	C.	Increase

QUESTION 8

The following journal entry has what impact on the income statement?

Debit Cash XXX

Credit Accounts Receivable XXX

	A.	No impact
	B.	Increase
	C.	Decrease

QUESTION 9

Revenue is defined as:

An inflow or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other activities that constitute the entityâs ongoing major or central operations.

Revenue is recognized from the settlement of which of the following liabilities:

	A.	Discount on Bonds Payable
	B.	Deferred Revenue
	C.	Salaries Payable
	D.	Accrued Interest

QUESTION 10

A customer must have "control" over the good or service in order for a performance obligation to be considered as having been satisfied for purposes of revenue recognition.

	A.	TRUE
	B.	FALSE

1. Make all adjustments on the "Adjusting Journal Entries". Remember to include a description under each journal entry.

12	. On 1/1/14, ABC Corporation purchased, as a held-to-maturity investment, $200,000 of the 8%, 5-year bonds of Intuit Corporation for $177,824,
	which provides an 11% return. Prepare ABC's 12/31/14 journal entry to reflect the receipt of annual interest and discount amortization.
	Assume the bond investment pays interest annually on 12/31 each year and that effective interest amortization is used.
	Note: Notice that a discount account is not used for this investment. Therefore, for purposes of this adjusting entry, amortize the discount directly to the
	investment account.


13.	ABC Corporation prepares an aging schedule on 12/31/14 that estimates total uncollectible accounts at $25,000. Assuming that the allowance method is used,
	prepare the entry to record bad debt expense.


14	On 1/1/14, ABC Corporation signed a 5-year noncancelable lease for a delivery vehicle. The terms of the lease called for ABC to Corporation to make
	annual payments of $10,503 at the beginning of each year, starting January 1, 2014. The delivery vehicle has an estimated useful life of 6 years and a $7,000
	unguaranteed residual value. The delivery vehicle reverts back to the lessor at the end of the lease term. ABC Corporation uses the straight-line method
	of depreciation for the delivery vehicle. ABC Corporation's incremental borrowing rate is 10%, and the Lessor's implicit rate is unknown. No entries have yet
	been made concerning this lease arrangement. After determining the type of lease arrangement (capital or operating), prepare the necessary multiple-part journal
	entry for 2014 for ABC Corporation. (Hints: You will need to compute the present value of the minimum lease payments and 4 separate sub-entries for
	this lease transaction. Also, for Statement of Cash Flow purposes, the principal portion of lease payments are correctly categorized as a financing activity.)


15	ABC Corporation provides a defined benefit pension plan for its employees. A combination adjusting entry should be made to correctly account for this type of pension
	plan given the following items of information for the 2014 plan year, including the recording of pension expense and the employer's contribution to the pension plan in 2014.
	Note: Use the summary entry method as demonstrated and discussed in the chapter lectures on pension accounting to prepare the adjusting entry.

	Pension asset/liability (January 1)		$0
	Actual return on plan assets		$40,000
	Expected return on plan assets		$20,000
	Contributions (funding) in 2014		$37,000
	Fair value of plan assets (December 31)		$75,000
	Settlement rate		10%
	Projected benefit obligation (January 1)		$0
	Service cost		$60,000
	Benefits paid in 2014		$0
	*For purposes of financial statement presentation, consider Pension Expense as an operating item and any resulting Pension Asset/Liability as long-term in nature.

16	On December 31, 2014, ABC Corporation issued 1,000 shares of restricted stock to its Chief Financial Officer. ABC stock had a fair value (closing market price) of
	$10 per share on December 31, 2014. Additional information is as follows:
		a. The service period related to the restricted stock is 2 years.
		b. Vesting occurs if the CFO stays with the company for a two-year period.
		c. The par value of the common stock is $3 per share.
	Make the appropriate accounting entry as of the grant date, 12/31/14. Note: use the alternative method as described in your textbook for deferred compensation.

	Do this step after preparing the Income Statement except for the Income taxes line: (You need to calculate Income Before Income Taxes in order to calcualte total Income Tax Expense)
17	Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15.
	However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full
	on the return's March 15, 2015 due date.
	ABC's income tax rate is 40%. The entire year's income tax expense was estimated at the beginning of 2014 to be $69,600,
	so January through November income tax expense recognized amounts to $63,800 (11/12 months).
	Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents
	tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities.
	Based on the income before income taxes figure from the income statement, record December's income tax expense
	so that the entire year's total tax expense is correct.

AFM391 Lecture Notes - Lecture 5: Stax Records

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