Mr Schultz the managing partner of an accounting firm is

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Mr. Schultz, the managing partner of an accounting firm, is concerned by some specific rules of
revenue recognition adopted by some of his clients. The following list contains some of the rules
he found in their Notes to financial statements:(a) DPS Business School Inc. (DPSBS Inc.)
invoices its students at the beginning of each quarter for the quarterly tuition fees. DPSBS Inc.
recognizes revenue only when tuition is actually paid by the students (or whomever, on their
behalf). The first quarter X2 tuition invoices were mailed on 1 December X1 and all the tuition
fee payments have been received in full by 15 December X1. No adjusting entry has been
recorded.(b) The Commercial Times is a newspaper, which receives payment for subscriptions.
Commercial Times has a daily circulation of 750,000 copies and sells over three-quarters of
these through annual subscription. Readers subscribe at any time during the year and there
seems to be no clear seasonality in new subscriptions or cancellations. The Commercial Times’
accountant is in the habit of recognizing as revenue for any year half of the cash received for
annual subscriptions in that year plus half the subscriptions payments received in the previous
year.(c) A bridge club invoices a membership fee to its members who receive in return the
magazine‘Bridge Forever’ and are entitled to specially discounted prices on other magazines
produced by the same publisher. The club, in order to simplify its recording of fees, spreads the
fee revenue on a straight-line basis over the period of membership.(d) A seller (shipper)
transfers goods to a buyer (recipient) who undertakes to sell the goods on behalf of the seller
(consignment sales). The shipper recognizes the revenue at the time of delivery to the
buyer.RequiredEvaluate whether the policies adopted by each firm are acceptable or not. In the
latter case, which policy should have been adopted?View Solution:
Mr Schultz the managing partner of an accounting firm is

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