1. What types of industries have unearned revenue? Why is unearned revenue considered a liability? When is the unearned revenue recognized in the financial statements? Provide a specific example.
2. Why do companies issue bonds? Would you rather buy a bond at a discount or a premium rate? Explain why. What is the determining factor of whether a bond is sold at a discount, face, or premium?
3. What are the payroll taxes paid by employees? What are the payroll taxes paid by the employer? What types of reports are used to document to the government the payroll taxes paid by the employee and employer?
1. Almost any type of industry can have unearned revenue. Companies that have received payment for goods or services but have not fulfilled their obligation to the customer has unearned revenue. If a customer pays an advertising agency $5,000 up front for $1,000 worth of advertising every month for 5 months, the $5,000 stays in unearned revenue and $1,000 is moved out of unearned revenue each month, as it is earned. The same concept applies to manufacturing. If a customer has paid in full for an order that is still in production, it is unearned revenue. Unearned revenue is a liability because the company has collected the money (an asset) but is still under obligation to perform in order to earn the revenue. Until the time that the company fulfills their obligation to "earn" the revenue, it is a liability to the company because they have done nothing as of yet to actually earn the money. The unearned revenue is recognized in the financial statements as a current liability when the company publishes their financial statement. ...
The solution provides a detailed discussion on unearned revenue, recognizing revenue, bonds, bond discounts and bond premiums, payroll taxes, and payroll reports.