Question

Help me to answer number 5,6,7

Thanks

Problems PROBLEM 9.1 in the following examples, indicate whether it was proper for X to record the particular amount of revenue according to accepted recognition principies (accrual system). Your answer shouid be 'yes' or 'no'. Give reasons for your answers. 1. X received a cheque for $500 from a customer in full payment for an item to be shipped DDP (delivered duty paid) destination. The common canier now has possession of the item. X recorded $500 as revenue. 2. A customer purchased a television set from X for $600 and paid cash. However, since he was going to Europe, he asked X to deliver the television set next month. X immediately recorded the $600 cash as revenue 3. X sold a motor vehicle to Y for $10 000 in December. Y paid a deposit of $1000 and agreed to pay the balance by monthly instalmenis beginning in January of the next accounting year Y's credit rating is good. X recorded $1000 as revenue for the year ended 31 December 4. X purchased a $10 000, 10 per cent corporate debenture at par on 1 March of this year. Interest is paid every 1 March and 1 September. X received $500 cash interest on 1 September and recorded the $500 as total interest revenue for the year ended 31 December. 5. Xoperates a garage. He repaired Y's car for $600 last year. There is no reason to doubt Y's ability to pay. X received payment this year and recorded the payment of $600 as revenue this year. 6. X delivered $2000 worth of merchandise on consignment to Y, the consignee. X recorded $2000 as sales revenue. 7. X is a management consultant and was asked by Y to conduct a study on the feasibility of selling a new product, D. The study was not completed until 20 January Year 10 but, at the end of Year 9, X estimated that she had rendered $2000 worth of services and recorded that amount as Service Revenue.

Answer 1

No.	Yes/ No	Reason
5	No	According accrual accounting method, the sales revenue is recorded in the year in which is earned not in the year the payment is received. The service was rendered last year and thus the revenue should have been recorded last year and thus not this year.
6	No	In accrual accounting method, the goods sent on consignment are not treated as sales until consignee actually sells the goods to customers. Thus, the amount of revenue will not be recognized.
7	Yes	In case of existence of no cause-and-effect relationship, the expenses are recorded in the accounting period when it is believed that the service has been used up.