Will Compass incur a liability in this arrangement? If so, what period will such liability first...

  

Transcribed Image Text:

Will Compass incur a liability in this arrangement? If so, what period will such liability first be recognized? Please show your calculation and provide any entries necessary to properly state the financials in that period of time. Per the contract, "If in any year, determined on the basis of a calendar year the services generate annual profit in excess of 7% of Gross Sales, company will pay to client an amount equal to 60% of the annual profit in excess of the company retention, and the company shall be entitled to 40% of the annual profit in excess of the company's Retention." Please note - Compass records liabilities throughout the year Period TOTAL SALES YTD TOTAL SALES TOTAL PERSONNEL COST TOTAL OTHER COSTS PROFIT/(LOSS) YTD PROFIT/(LOSS) 1, 2015 499540 499,540 184,528 298,405 16,607 16,607 P&L Reporting From Period 1, 2015 To Period 12, 2015 2, 2015 356.272 855,812 227,413 156,260 -27,401 10,794 3, 2015 257,142 1,112,954 98,252 104,017 54,873 44,079 4, 2015 164,622 1,277,576 83,875 98,561 -17,814 26,265 5, 2015 367,387 1,644,963 134,835 163,383 69,169 95,434 6, 2015 352,054 1,997,017 137,988 137,111 76,955 172,389 7, 2015 511,412 2,508,429 187,794 225,210 98,408 270,797 8, 2015 269,492 2,777,921 110,418 106,419 52,655 323,452 Profit Center: Client B 9, 2015 125,587 2,903,508 96.447 106,509 -77,369 246,083 10, 2015 390,566 3,294,074 169,433 202,647 18,486 264,569 11, 2015 216,342 3,510,416 114,842 123,285 -21,786 242,783 12, 2015 365,559 3,875,975 149,089 141,996 74,474 317,257 TOTAL 3,875,975 1,694,914 1,863,804 317,257 Will Compass incur a liability in this arrangement? If so, what period will such liability first be recognized? Please show your calculation and provide any entries necessary to properly state the financials in that period of time. Per the contract, "If in any year, determined on the basis of a calendar year the services generate annual profit in excess of 7% of Gross Sales, company will pay to client an amount equal to 60% of the annual profit in excess of the company retention, and the company shall be entitled to 40% of the annual profit in excess of the company's Retention." Please note - Compass records liabilities throughout the year Period TOTAL SALES YTD TOTAL SALES TOTAL PERSONNEL COST TOTAL OTHER COSTS PROFIT/(LOSS) YTD PROFIT/(LOSS) 1, 2015 499540 499,540 184,528 298,405 16,607 16,607 P&L Reporting From Period 1, 2015 To Period 12, 2015 2, 2015 356.272 855,812 227,413 156,260 -27,401 10,794 3, 2015 257,142 1,112,954 98,252 104,017 54,873 44,079 4, 2015 164,622 1,277,576 83,875 98,561 -17,814 26,265 5, 2015 367,387 1,644,963 134,835 163,383 69,169 95,434 6, 2015 352,054 1,997,017 137,988 137,111 76,955 172,389 7, 2015 511,412 2,508,429 187,794 225,210 98,408 270,797 8, 2015 269,492 2,777,921 110,418 106,419 52,655 323,452 Profit Center: Client B 9, 2015 125,587 2,903,508 96.447 106,509 -77,369 246,083 10, 2015 390,566 3,294,074 169,433 202,647 18,486 264,569 11, 2015 216,342 3,510,416 114,842 123,285 -21,786 242,783 12, 2015 365,559 3,875,975 149,089 141,996 74,474 317,257 TOTAL 3,875,975 1,694,914 1,863,804 317,257

Answer rating: 100% (QA)

The question surrounds whether Compass will incur a liability in a specific arrangement and if so when the liability should be first recognized Based ... View the full answer