Exam 5: Revenues, Receivables, and Operating Expenses

Costco Wholesale Corporation collects annual non-refundable membership fees from customers. When should Costco recognize revenue for these membership fees?

Accounts receivables (net) reported in the current asset section of a company's balance sheet represents the total amount owed by customers within the next year.

The Bean Import Export Corp. has a profitable Portuguese subsidiary that maintains its financial records in Euros. During the current year, the U.S. dollar strengthened vis-à-vis the Euro. What affect did this have on The Bean's consolidated income statement for the current year?

The 2016 balance sheet of Leggett & Platt reports total assets of $2,984.1 million for 2016 and $2,963.7 million for 2015. The financial statements include the following footnote: Accounts and other receivables at December 31 consisted of the following: Determine the common-size amount for gross accounts receivable and interpret the year-over-year change in the ratio.

Glendale Sporting Goods reports the following on its 2016 balance sheet: Company records reveal that Denise Butler owes Glendale Sporting Goods $4,600. Just after 2016 year- end, Denise Butler declares bankruptcy and it becomes clear to Glendale Sporting Goods that the company will not be able to recover any money from Butler. Indicate how this information affects the balance sheets and income statements in 2016 and 2017.

Discuss when each of the following types of businesses should likely recognize revenue: a. A software company such as Microsoft when significant production, modification, or customization does not exist. b. A clothing retailer like Neiman Marcus.

Bed Bath and Beyond has a return policy which states that the customer "may return a purchase for a refund, merchandise credit, or exchange to any of our stores nationwide or to our returns processing center". The company can report revenue on the full amount as soon as the merchandise is sold.

The asset side of the 2016 balance sheet for Leggett & Platt (a furniture manufacturer) follows. The company reported net sales of $3,749.9 million in 2016 and $3,917.2 million in 2015. Use this information to answer the requirements: Table continued next page Table continued Required: a. Compute the accounts receivable turnover for 2016 and 2015. At December 31, 2014, accounts and other receivables, net were $523.3 million. b. Compute the days sales outstanding (DSO) for each year. c. Does the number of days to collect receivables seem appropriate for Leggett & Platt? d. How could Leggett & Platt improve its accounts receivable turnover?

How do companies use accounts receivables to shift income? Explain why managers engage in this sort of activity.

Ticketmaster contracts with the producer of Blue Man Group to sell tickets online. Ticketmaster charges each customer a fee of $9 per ticket and receives $22 per ticket from the producer. Ticketmaster does not take control of the ticket inventory. Average ticket price for the event is $105. How much revenue should Ticketmaster recognize for each Blue Man Group ticket sold?

The 2017 Form 10-K of Oracle Corporation, for the May 31, 2017 year-end, included the following information relating to their allowance for doubtful accounts: Balance in allowance at the beginning of the year $327 million, accounts written off during the year $137 million, balance in allowance at the end of the year $319 million. What did Oracle report as bad debt expense for the year?

When should each of the following companies recognize revenue for the following operations? Identify potential revenue recognition issues or risk exposures facing the company: a. Costco Wholesale Corporation collects annual membership fees from customers. b. The New York Times receives advertising revenues in advance from Citigroup, for an ad campaign that will run a full-page spread once a week for six months. c. Zappos is an online clothing and shoe retailer. It receives credit card payments when customers place their orders and ships products from warehouses within 5-7 business days. d. Ticketmaster contracts with the producer of Blue Man Group to sell tickets online. Ticketmaster charges each customer a fee of $7 per ticket and receives $12 per ticket from the producer. Ticketmaster does not take control of the ticket inventory. Average ticket price for the event is $99.

Heller Company offers an unconditional return policy to its customers. During the current period, the company records total sales of $850,000, with a cost of merchandise to Heller of $340,000. Based on past experience, Heller Company expects 4% of sales to be returned. How much in net sales will Heller Company recognize for the current period?

At what amount will accounts receivable be reported on the balance sheet if the gross receivable balance is $50,000 and the allowance for uncollectible accounts is estimated at 16% of gross receivables?

Apple Inc. and Microsoft Corporation are competitors in the computer industry. Following is a table of Total revenue and R&D expenses for both companies. Which of the following is true?

McKinnon Enterprises owns a professional ice hockey team, the Rockford Penguins. The company sells season tickets for its upcoming season and receives $960,000 cash. The season starts January 1, 2018, with five home games occurring monthly over the next six months. What is the balance in the company's deferred revenue account at the end of April 2018? (Assume the deferred revenue account had a zero balance on January 1, 2018.)

Which of the following items creates complications related to revenue recognition?

What effect, if any, does a strengthening of the dollar have on reported sales and net income for companies operating outside the United States, when those foreign operations are translated to U.S. dollars for consolidation purposes?

Oracle reports the following in footnotes to its 2016 Form 10-K. Geographic Information Disclosed in the table below is geographic information for each country that comprised greater than three percent of our total revenues for any of fiscal 2016, 2015 or 2014. (1) Long-lived assets exclude goodwill, intangible assets, equity investments and deferred taxes, which are not allocated to specific geographic locations as it is impracticable to do so. Required: a. What proportion of Oracle's total revenue is potentially exposed to foreign currency risk? b. Assume that Oracle does not undertake any measures to reduce its foreign currency exposure. If the U.S. dollar strengthens on average 10% vis-à-vis the European currencies in which the company transacts, and weakens 5% relative to the Japanese yen, what will be the impact on revenues in 2016? c. Explain what steps Oracle can take to reduce its foreign currency risk.

The 2016 annual report of Murray Corporation included the following disclosure: During fiscal 2016, the U.S. dollar strengthened relative to the other principal currencies in which we transact business with the exception of the Japanese yen. Explain the effect on Murray Corporation's 2016 income statement of the U.S. dollar: a. weakening vis-à-vis the Japanese yen, and b. strengthening versus all other currencies. Assume that Murray Corporation reported a net profit in each of the countries involved.