BIKE Company starts with $3,000 cash to finance its business plan to produce bike helmets with a simple assembly process

Understanding Revenue Recognition

For this assignment, turn to page 364 in your textbook (Chapter 6 of Financial Statements Analysis), and complete Case 6-1, Understanding Revenue Recognition.

BIKE Company starts with $3,000 cash to finance its business plan to produce bike helmets with a simple assembly process. During the first month of business the company signs sales contracts for 1,300 units (sales price of $9 per unit), produces 1,200 units (production cost of $7 per unit), ships 1,100 units, and collects in full for 900 units. Production costs are paid at the time of production. The company has only two other costs:

This is the entire problem. Do you think it will be completed by tonight? Sorry but i need it by then.

1. Commission of 10% of the selling price when the company collects from the customer;
2. Shipping costs of $0.20 per unit paid at time of shipment. Selling price and all costs per unit have been constant and are likely to remain the same.

A. Prepare comprehensive (side by side) balance sheets and income statements for the first month of BIKE Company for each of the following three alternatives:
1. Revenue is recognized at the time of shipment
2. Revenue is recognized at the time of collection
3. Revenue is recognized at the time of production

Note: net income for each of the three alternatives is (1) $990, (2) $810, and (3) $1080 respectively.

B. The method where revenue is recognized at the time of collection, known as the installment method, is except the bull for financial reporting in unusual and special cases. Why is BIKE Company likely to prefer this method for tax purposes? (one line simple answer)

C. Comment on the usefulness of the installment method for a credit analyst is using both the balance sheet and income statement.


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20 Questions: A simple structure is characterized by

1. A simple structure is characterized by (Points : 5)

2. Complete the following sentence: "Virtual organizations __________ whereas modular organizations __________." (Points : 5)

3. The phrase that best defines a virtual organization is (Points : 5)

4. Effective ambidextrous organizations have alignment, which means that (Points : 5)

5. Important advantages of a holding company structure include (Points : 5)

6. An organization such as ConAgra that has dozens of different divisions with similar products will probably have the greatest success with which form of organization structure? (Points : 5)

7. What is the name of the practice that many modular organizations use to grow? (Points : 5)

8. Which of the following statements would least likely be found in a corporate credo? (Points : 5)

9. Leaders play a key role in developing and sustaining an organization's (Points : 5)

10. The "bottom-up" perspective of empowerment (Points : 5)

11. Which of the following is not a characteristic of a successful learning organization? (Points : 5)

12. Coercive power is (Points : 5)

13. Refusal to share information, conflicts over resources, conflicts between departments and divisions, and petty interpersonal differences are symptoms of which type of barrier to change? (Points : 5)

14. Expert power (Points : 5)

15. Strategic reasons for undertaking a corporate venture include which of the following? (Points : 5)

16. Product champions (Points : 5)

17. The innovation dilemma known as seeds versus weeds refers to (Points : 5)

18. __________ produce fundamental changes that can transform a company or even revolutionize an industry, while __________ enhance existing practices and often represent evolutionary applications of fundamental breakthroughs. (Points : 5)

19. Which kind of risk taking requires that a company borrow heavily or commit a large portion of its resources in order to grow? (Points : 5)

20. Real options analysis is most appropriate when (Points : 5)

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