Question

Indicate if each of the following items would be recognized in Jackson Ltd.'s financial statements for 2019 and, if so, what elements would be recognized. For any items that would not be recognized, explain the reason for non-recognition.

1.    Jackson issued a purchase order to buy inventory early in the following year.

2.    The month of December has passed, and tenants occupying space in Jackson's building have not yet paid the rent. Jackson's rental agent believes that payment is reasonably assured.

3.    Jackson's share price has decreased from $50 to $45 on the stock exchange.

4.    Jackson sold the right to use its international industrial trademark to a Taiwanese computer manufacturer for the next five years.

5.    Jackson has a reasonably reliable estimate of the future cost of reaching a settlement on a pending patent infringement lawsuit.

Answer 1

1. Jackson issued a purchase order to buy inventory early in the following year - No

Reason - Placing a purchase order, in no way affects the financials since no actual purchase has taken place yet.

2. The month of December has passed, and tenants occupying space in Jackson's building have not yet paid the rent. Jackson's rental agent believes that payment is reasonably assured - Yes

Rent receivable Dr.

To Rent income

3. Jackson's share price has decreased from $50 to $45 on the stock exchange - No

Reason - Jackson's decrease in share price will not affect Jackson's financials because the share capital includes paid-up capital and that is unaffected by change in market value of share.

4. Jackson sold the right to use its international industrial trademark to a Taiwanese computer manufacturer for the next five years. - Yes

Bank a/c Dr.

To Sale of right to use(Income) [ it is assumed that amount has been received ny the manufacturer]

5. Jackson has a reasonably reliable estimate of the future cost of reaching a settlement on a pending patent infringement lawsuit. - Yes

Legal expenses a/c Dr.

To Provision for legal expenses