DEFERRED REVENUE

PROBLEM 2-1
Cobb Department Store sells gift certificates redeemable only when merchandise is purchased.
These gifts certificates have no expiration date. Upon redemption or expiration, the entity
recognizes the unearned revenue as realized.
Information for the current year is as follows:

Unearned revenue, January 01, 2015 650,000

Gift certificates sold 2,250,000
Gift certificates redeemed 1,950,000
Gift certificates expected not to be redeemed 100,000
Cost of goods sold 60%

On December 31, 2015, what amount should be reported as unearned revenue?

a. 510,000
b. 570,000
c. 850,000
d. 950,000

PROBLEM 2-2
Regal Department Store sells gift certificates, redeemable for store merchandise and with no
expiration date. The entity has the following information pertaining to the gift certificate sells
and redemption:

Unearned revenue on January 01, 2015 750,000

2015 Sales 2,500,000
2015 redemption of prior year sales 250,000
2015 redemption of current year sales 1,750,000

On December 31, 2015, what amount should be reported as unearned revenue?

a. 1,250,000
b. 1,125,000
c. 1,000,000
d. 500,000

PROBLEM 2-3
Marr Company sells its products in reusable containers. The customer is charged a deposit for
each container delivered and received a refund for each container returned within two years
after the year of delivery.
The entity accounts for the containers not returned within the time limit as being retired by sale
at the deposit amount. The entity provided the following information for 2015:
Container deposits on December 31, 2014 from deliveries in:
2013 150,000
2014 430,000 580,000
Deposits for containers delivered in 2015 780,000
Deposits for containers returned in 2015 from delivered in:
2013 90,000
2014 250,000
2015 286,000 626,000

On December 31, 2015, what is the liability for deposits?

a. 494,000
b. 584,000
c. 674,000
d. 734,000

PROBLEM 2-4
Fell Company operates a retail grocery store that is required by law to collect refundable
deposits of P5 on soda cans. Information for the current year follows:
Liability for refundable deposit-January 01 150,000
Cans of soda sold 100,000
Soda cans returned 110,000

During the current year, the entity subleased space and received a P25000 deposit to be
applied against rent at the lease in 5years.

What amount should be reported as current liability for deposit on December 31?
a. 125,000
b. 140,000
c. 100,000
d. 25,000

PROBLEM 2-5
Greene Company sells office equipment service contracts agreeing to service equipment for a
two-year period. Cash receipts from contracts are credited to unearned service contract
revenue and service contract cost are charged to service contract expense as incurred. Revenue
from services contract is recognized as earned over the lives of the contracts. Additional
information for the current year is as follows:

Unearned service contract revenue at January 01 600,000

Cash receipts from service contract sold 980,000
Service contract revenue recognized 860,000
Service contract expense 520,000
What amount should be reported as unearned service contract revenue on December 31?
a. 460,000
b. 480,000
c. 490,000
d. 720,000

PROBLEM 2-6
Ryan Company sells major household appliance service contracts for cash. The service contracts
are for a one-year, two-year or three-year period. Cash receipts from contracts are credited to
unearned service contract revenue. This amount had a balance of P720000 on December 31,
2015 before year-end adjustment. Service contract cost are charged as incurred to the service
contract expense amount, which had a balance of P180000 on December 31, 2015 outstanding
service contracts on December 31, 2015 expire as follows:

During 2016 150,000

During 2017 225,000
During 2018 100,000

What amount should be reported as unearned service contract revenue on December 31,
2015?
a. 540,000
b. 475,000
c. 295,000
d. 245,000

PROBLEM 2-7
Dunne Company sells equipment service contracts that cover a two-year period. The sell price
of each contract is P600. The past experience is that, of the total pesos spent for repairs on
service contracts, 40% is incurred evenly during the first contract year and 60% evenly during
the second contract year. The entity sold 1,000 contracts evenly throughout 2015.

What amount should be reported as deferred service revenue on December 31, 2015?
a. 540,000
b. 480,000
c. 360,000
d. 300,000

PROBLEM 2-8
Cobb Company sells appliance service contracts agreeing to repair appliances for a two-year
period. The past experience is that, of the total amount spent for repairs on service contracts,
40% is incurred evenly during the first-year contract and 60% evenly during the second-year
contract. Receipts from service contracts sales are credited to unearned service contracts
revenue. All sales are made evenly during the year.

What amount should be reported as unearned revenue on December 31, 2016?

a. 360,000
b. 470,000
c. 480,000
d. 630,000