episode 08 exercise 03

Part 3

Use this data in answering the following questions.

On December 27, 2000, CanGo wrote two checks. The first, for $72,000 to Save-It Insurance Company, was for insurance coverage commencing January 1, 2001. The second, to It's Ours, a property management company, was for $24,000. It was for rent, also commencing on January 1, 2001.

Between December 10th and 23rd, 2001, CanGo sold $3,000,000 worth of subscriptions for magazines to be delivered in the future. As an enticement for people to buy these magazine subscriptions, CanGo guaranteed to mail the first issue between December 26th and 31st, 2001, and was able to meet this commitment.

Determine the amounts of revenue or expense recognized for each of the following independent situations.

1.	Assume the $3,000,000 of subscriptions represented 100,000 one-year subscriptions to a magazine published monthly. How much revenue would CanGo recognize in 2001?
	a. $250,000
	b. $125,000
	c. $500,000
	d. $3,000,000

2.	Assume instead that each of the 100,000 subscriptions was for two years of a monthly magazine. How much revenue would CanGo recognize in 2002?
	a. $500,000
	b. $100,000
	c. $1,500,000
	d. $1,000,000

3.	Assume instead that the $3,000,000 represented only 50,000 one-year subscriptions to an upper-end magazine with only 6 issues per year. Assuming that CanGo met its commitment to mail the first issue in December 2001, and ships an issue every other month thereafter, how much revenue will be recognized in the second quarter of 2002 (April-June)?
	a. $1,500,000
	b. $1,000,000
	c. $2,000,000
	d. $3,000,000

4.	Using the same assumptions as in the last question, how much revenue will CanGo recognize for the fourth quarter, 2002?
	a. $1,500,000
	b. $100,000
	c. $500,000
	d. $1,000,000

5.	Assume the insurance check purchased 12 months of coverage. What would be the amount of insurance expense recognized when the check was written on December 27th?
	a. $0
	b. $100,000
	c. $1,000,000
	d. $3,000,000

6.	Assume the rent check covered 6 months. What rent expense would be shown for the first quarter of 2001?
	a. $3,000
	b. $1,500
	c. $12,000
	d. $10,000

7.	If the rent check instead covered 8 months, how much rent expense would be recognized for January 2001?
	a. $3,000
	b. $1,500
	c. $12,000
	d. $10,000

8.	Assume the rent check covered a full year's rent, but was rent for a new warehouse that would be occupied for the first time on February 1, 2001. What would be the amount of prepaid rent as of March 31, 2001?
	a. $10,000
	b. $12,000
	c. $18,000
	d. $20,000

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