Page 541 - F2 Integrated Workbook STUDENT 2019

Answers to supplementary objective test questions

6.4 C

This is a low value asset lease. Lease rentals should be recorded over a
systematic basis over the lease term.

Rental expense shown in profit or loss = total payments/lease term = (1,000 ×
2)/3 = $667.

SOFP accrual = $667 (expensed $667, paid nothing).

Journal required would be Dr rental expense (P/L) 667 Cr accrual 667.

CHAPTER 7 – REVENUE

7.1 A

A contract is created when a customer signs up for a subscription.

The contract consists of one performance obligation; to deliver magazines every
month for 3 months.

The price of the contract is the quarterly subscription price. That price is fully
allocated to the delivery of the three magazines as this is the only performance
obligation within the contract.

These subscriptions will recognise revenue at a point in time. The revenue will
be recorded when control of the magazine is transferred to the customer.
Revenue should be recognised on a monthly basis when each new magazine
under the subscription is delivered. Revenue should only be recognised from
the month following that in which cash is received e.g. cash received in
September, first copy delivered in October, revenue only recognised from
October onwards.

September subs (Oct – Dec delivery) $780,000 × 3/3 = $780,000

October subs (Nov – Jan delivery) $850,000 × 2/3 = $566,667

November subs (Dec – Feb delivery) $800,000 × 1/3 = $266,667

Total revenue = $1,613,334

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