Question

Does the cash basis or the accrual basis of accounting provide a better indication of the operating performance of Mostert Music Company in March? Explain. Identifying Revenues Revenues are normally recognized when the entity has transferred to the buyer the significant risks and rewards of ownership of the goods, it retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods, it is probable that future economic benefits will flow to the company, and the benefits from and costs associated with the transaction can be measured reliably. The amount recorded is the cash- equivalent sales price. Assume that the following events and transactions occurred in September 2014:
a. A customer purchases a ticket from WestJet for $ 435 cash to travel the following January. Answer from WestJet’s standpoint.
b. General Motors issues $ 26 million in new shares.
c. Hall Construction Company signs a contract with a customer for the construction of a new $ 500,000 warehouse. At the signing, Hall receives a cheque for $ 50,000 as a deposit on the future construction. Answer from Hall’s standpoint.
d. On September 1, 2014, a bank lends $ 10,000 to a company. The loan carries a 6 percent annual interest rate, and the principal and interest are due in a lump sum on August 31, 2015. Answer from the bank’s standpoint.
e. A popular ski magazine company receives a total of $ 1,800 from subscribers on September 30, the last day of its fiscal year. The subscriptions begin in the next fiscal year. Answer from the magazine company’s standpoint.
f. Sears Canada sells a $ 100 lamp to a customer who charges the sale on his store credit card. Answer from the standpoint of Sears.
g. A customer orders and receives 10 personal computers from Dell Inc.; the customer promises to pay $ 20,000 within three months. Answer from Dell’s standpoint.
h. Sam Shell Dodge sells a truck with a list, or sticker, price of $ 24,000 for $ 21,000 cash.
i. The Hudson’s Bay Company orders 1,000 men’s shirts from Gildan Activewear Inc. at $ 18 each for future delivery. The terms require payment in full within 30 days of delivery. Answer from Gildan’s standpoint.
j. Gildan Activewear completes production of the shirts described in (i) and delivers the order. Answer from Gildan’s standpoint.
k. Gildan receives payment from the Hudson’s Bay Company for the order described in (i). Answer from Gildan’s standpoint.
Required
For each of the September transactions,
1. Indicate the account titles that are affected and the type of each account (A for asset, L for liability, SE for shareholders’ equity, and R for revenue).


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  • CreatedAugust 04, 2015
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