Deferred Revenue Flashcards
A retail store sold gift certificates that are redeemable in merchandise. The gift certificates lapse one year after they are issued. How would the deferred revenue account be affected by each of the following?
Redemption of certificates Lapse of certificates
Decrease Decrease
The redemption of the certificates would decrease deferred revenue and increase revenue because the earnings process is completed once the store delivers the merchandise. If the gift certificates lapse, this will also decrease unearned revenue and recognize other income or a payable if the governing authorizes require these amounts to be remitted as unclaimed property.
On March 31, 2005, Dallas Co. received an advance payment of 60% of the sales price for special order goods to be manufactured and delivered within five months.
At the same time, Dallas subcontracted for production of the special order goods at a price equal to 40% of the main contract price.
What liabilities should be reported in Dallas’ March 31, 2005 balance sheet?
The only liability (deferred revenue) to be recorded is the advance for 60% of the main contract price.
Dallas received this cash and has a liability for that amount until it performs on the contract. Dallas has no liability for the subcontracted production because no resources have been exchanged.
Aneen’s Video Mart sells 1- and 2-year mail order subscriptions for its video-of-the-month business. Subscriptions are collected in advance and credited to sales. An analysis of the recorded sales activity revealed the following:
2004 2005 Sales $420,000 $500,000 Less cancellations 20,000 30,000 Net sales $400,000 $470,000 ======== ======== Subscriptions expirations: 2004 $120,000 2005 155,000 $130,000 2006 125,000 200,000 2007 140,000 \_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_ $400,000 $470,000 ========= =========
In Aneen’s December 31, 2005 balance sheet, the balance for unearned subscription revenue should be
The unearned revenue amount at the end of 2005 is the subscription value of unexpired subscriptions at that date. Subscriptions will expire as follows:
Year of subscription: 2004 2005 Total Expiration in: 2006 $ 125,000 $ 200,000 $325,000 2007 140,000 140,000 Total expiring after 2005: $465,000
Barnel Corp. owns and manages 19 apartment complexes. On signing a lease, each tenant must pay the first and last month’s rent and a $500 refundable security deposit.
The security deposits are rarely refunded in total, because cleaning costs of $150 per apartment are almost always deducted. About 30% of the time, the tenants are also charged for damages to the apartment, which typically cost $100 to repair.
If a one-year lease is signed on a $900 per month apartment, what amount would Barnel report as refundable security deposit?
The damage deposit on all apartments is $500. Although it is likely that most tenants will be charged for some damages and cleaning, these reductions in the amount to be reimbursed cannot be anticipated. The damage to the apartments typically is not known until the end of the lease term.
The firm must maintain its $500 liability until the condition of each apartment becomes known at the end of the lease term. The conditions causing the need for repair or cleaning may not have occurred as of the balance sheet date.
Buc Co. receives deposits from its customers to protect itself against nonpayments for future services. These deposits should be classified by Buc as
The firm has an obligation to return the deposit, and therefore records a liability upon receipt. It is probable that the deposit will be returned, and it is a result of a past transaction. A deposit meets the general definition of a liability.
