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Chapter 18: Q26Q. (page 1031)
Explain a principal-agent relationship and its significance to revenue recognition.
The principal-agent relationship states that the principal's performance role is to deliver goods or provide services for the customer.
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When does a company satisfy a performance obligation? Identify the indicators of satisfaction of a performance obligation.
(Determine Transaction Price) Taylor Marina has 300 available slips that rent for $800 per season. Payments must be made in full by the start of the boating season, April 1, 2018. The boating season ends October 31, and the marina has a December 31 year-end. Slips for future seasons may be reserved if paid for by December 31, 2018. Under a new policy, if payment for 2019 season slips is made by December 31, 2018, a 5% discount is allowed. If payment for 2020 season slips is made by December 31, 2018, renters get a 20% discount (this promotion hopefully will provide cash flow for major dock repairs).
On December 31, 2017, all 300 slips for the 2018 season were rented at full price. On December 31, 2018, 200 slips were reserved and paid for the 2019 boating season, and 60 slips were reserved and paid for the 2020 boating season.
Instructions
(a) Prepare the appropriate journal entries for December 31, 2017, and December 31, 2018.
(b) Assume the marina operator is unsophisticated in business. Explain the managerial significance of the above accounting to this person.
Organic Growth Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Organic Growth estimates returns of 20%. Organic Growth sells these seeds on account for \(1,500,000 (cost \)750,000) on January 2, 2017. Customers are required to pay the full amount due by March 15, 2017.
Instructions
(a) Prepare the journal entry for Organic Growth at January 2, 2017.
(b) Assume that one customer returns the seeds on March 1, 2017, due to unsatisfactory performance. Prepare the journal entry to record this transaction, assuming this customer purchased \(100,000 of seeds from Organic Growth.
(c) Assume Organic Growth prepares financial statements quarterly. Prepare the necessary entries (if any) to adjust Organic Growth’s financial results for the above transactions on March 31, 2017, assuming remaining expected returns of \)200,000.
Refer to the information in Question 14. Assume that Allee has limited experience with a construction project on the same scale as the ten speedboats. How does this affect the accounting for the variable consideration?
Explain the accounting for sales with the right of return.
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