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Solution Manual for Intermediate Accounting Volume 2 8th Edition Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel Chapter 12-22€12,30
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Solution Manual for Intermediate Accounting Volume 2 8th Edition Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel Chapter 12-22
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Solution Manual for Intermediate Accounting Volume 2 8th Edition Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel Chapter 12-22
To: Members of Board of Directors From: Accounting Consultant
RE: Winter Fun Incorporated
Overview
Winter Fun Incorporated (WFI) uses IFRS for financial reporting. The bank loan has a minimum
current ratio so you will need to be careful and watch for any impacts on the ratio. You have had
a tough year this year and faced a loss so the bank financing is critical to your operations.
Issues
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1. Revenue recognition memberships
2. Revenue recognition guests
3. Special promotions
4. Coupons
5. Manufacturer Loan
6. Lawsuit
7. Warranty
8. Gasoline storage tanks
9. Foreign currency payables
10. Compensated absences
Analysis and Recommendations
1. Revenue recognition memberships Following the 5 step IFRS model:
Initiation fee
Step 1: The contract with the customer is for the membership in the club. This would be a written
agreement between the member and WFI.
Step 2: There is one performance obligation, the promised service is membership in the ski club.
There is no transfer of the service until the membership is provided.
Step 3: The contract price is $10,000. The non-refundable deposit is an advance payment
towards this initiation fee and is part of the overall transaction price.
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Step 4: No allocation since there is only one performance obligation.
Step 5: The performance obligation for the initiation fee is satisfied over the period of time that
the member belongs to the club. The $10,000 would be recognized over the average period a
member belongs. There should be enough historical data available to come up with a reasonable
estimate. There would be no cash collection risk since the amount is paid upfront.
Annual fee
Step 1: The annual fee is a written agreement between the member and WFI. Step 2: There is
again one performance obligation, the service for this year.
Step 3: The fee of $2,000 is the total contract price and is received in 20X5 for the 20X6 ski
season. This would be unearned revenue when received.
Step 4: There is no allocation since there is only one performance obligation.
Step 5: Assuming the ski season goes from Dec 1 until March 31 $500 would be recognized in
20X5 and the remainder in 20X6 which would be the period in which the service is performed.
There would be no cash collection risk since the amount is paid upfront.
2. Revenue recognition guests Following the 5 step IFRS model:
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