ACCT 3350 Financial Accounting Foundations

ACCT 3350 FINANCIAL ACCOUNTING FOUNDATIONS 8

ACCT 3350 Financial AccountingFoundations

Fall2015

Assignment#4

ACCT 3350 Financial AccountingFoundations

Question 2

Part 1

Saint Mary`s University

The revenue recognition forSaint Mary`s Universityis thestudent contributions,government. Grantsand contracts,investmentreturns designated for current operations,fund raising andauxiliaryenterprises.The main cash for SAINTMARY`S COMPANY isstudents’contributions

Part 2

Groupon Inc. Company Ltd.

Groupon Inc. has been aprofoundly known company that has specialized in connecting itssubscribers, who arethe customers and the merchant dealers. It is an e-commerce platformthat seeks that provides goods, services and travel advisory invarious countries. Itincreases customer purchasing power and the same time giving themerchants a business platform to make money.It helps peopleto discover the price of goodsthroughoutthe world thus making people to have a strong purchasingpower.

The quote from the excerptis Groupon Inc. is that it recognizesassets and liabilities for the present valueof estimated futurecosts. Thecompany also recognizesrevenue when earned andnot received.

Groupon Company recognizesits revenue when the following criteria are met:

  1. Persuasive evidence of an arrangement exist.

  2. Delivery of physical goods has occurred.

  3. The selling price of goods is fixed or determined.

  4. Collection is reasonably assured.

The two interesting parts ofGroupon Company limited is how the Company recognizesits direct revenue and how it gives customer credits. The revenuerecognition is through the primary selling of consumer productsthrough the goods category where the Company is a merchant or record.The customer credit is used alongsidefuture purchases over its online market places for particularqualifying acts. It recognizesrevenue excluding taxes and net estimated refunds. Before the refundsto customersthe company recognizesthe revenue of the sold goods (GROUPON).

The two parts are interestingsince the Company identifiesthe revenue after the collection of the goods is reasonably assured.The accounting principles are fulfilledsince revenue is acceptedwhen earned and from sales of primary products and credits are givento customers on future purchases which ensures the going concern ofthe Company. This fulfills the principal expenses and revenuerecognition where expenses are alsoidentified whenincurredand revenues when earned. The companyalso give out the customer credits on future purchases to encouragecustomers to buy in bulk thus enabling future live of the company.This policy is certifyingthe accounting rule of a going concern thus the company ensures itscreditors the future life of the business (GROUPON)

Question 4

Part 1

SMUFX COMPANY

Cash Recognized = no of booksshipped ×price per each book

= 4500 × 90

= $40500

Cash Received by the company

= 3500 × 90

= $ 31500

The company will recognizethis amount ($405000) becauseit’searned and not received.According to the accounting principles, revenue is recognizedwhen earned not received.The company earned $405000 in 2014 and received315000 in 2014. The company cannotrecognize$ 315000 becauseit was receivednot earned in 2014.

Part Two

SMUFX COMPANY

Amount recorded amount in 2015= amount earned in 2015 – amount not received in 2015

Amount earned in 2015 =packages of live Acc. shipped × price for each package

=$150×200=$ 30000

Amount not received

=$ 70×7= 490

= 30000 – 490

=$ 29510

1 .The assumptions made isthat all packages sale at the same price

2 .All components of liveaccounting and accounting 101 have the same value, that is, textbooksonline exams and certificates.

Question 5

Part 1

a)

Profits of each year contract

year

2014

2015

2016

billing to date

1000000

2000000

1000000

collections to date

800000

1600000

1100000

cost incurred

1100000

900000

1955000

profit for year

900000

1800000

145000

b)

Billings Account

Dr cr

particulars

amount

amount

2014

1000000

2015

2000000

2016

1000000

bal b/d 4000000

4000000

4000000

Bank Account Dr Cr

particulars

amount

particulars

amount

cash 2014

1100000

cash in 2014

4000000

cash 2015

900000

cash 2016

1955000

Cashbook DRCr

particulars

cash

bank

particulars

cash

bank

initial

4000000

2014 cash collected

800000

2014 costs incurred

1100000

2015 cash collected

1600000

2015 costs incurred

9000000

2016 cash collected

1100000

2016 costs incurred

1995000

2014 billings

1000000

2015 billings

2000000

billings 2016

1000000

c)

General Ledger

account description

debit

credit

billings 2014 cash for first year

1000000

2015 cash

2000000

2016 cash for

1000000

costs incurred 2014

1100000

2015

900000

2016

1955000

collected revenue 2014

800000

2015

1600000

1100000

d) Balance Sheet

As of 31st Dec 2014

assets

liabilities

Account receivables

800000

billings

1000000

contractionin progress

1100000

Balance sheet

As of Dec 2015

assets

amount

liabilities

amount

Account receivables

1600000

billings

2000000

construction in progress

1000000

e)

Income statement for the years 2014, 2015, 2016

2014

2015

2016

contact revenue

4800ooo

1600000

1100000

costs incurred

1100000

900000

1955000

gross profit

3700000

700000

-855000

Part 2

f)

Gross Profit

year

2014

2015

2016

billing for the year

1000000

2000000

1000000

cash collected

800000

1600000

1100000

costs incurred

1100000

900000

1955000

profit for the year

700000

1700000

145000

g)

Journal Entries to Close the Contract

Cash Account Cr Dr

year

2014

4800000

1100000

2015

1600000

900000

2016

1100000

1955000

bal b/d 3545000

7500000

7500000

bal c/d 3545

Billings Account DrCr

year

amount

amount

2014

10000000

2015

20000000

2016

10000000

balance b/d 4000000

40000000

40000000

Reference

GROUPON. Retrieved 27th Nov, 2015 fromhttps://www.groupon.com