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Topics covered include revenue, depreciation, and bonds.

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?

2. What are the differences among valuation, depreciation, amortization, and depletion? Is it appropriate to calculate depreciation using two different methods? Why?

3. Which depreciation method provides you with the highest depreciation expense in the first year? Why?

4. Why do companies issue bonds? Would you rather buy a bond at a discount or a premium rate? Why? What is the determining factor of whether a bond is sold at a discount, face value, or premium?

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1. Many kinds of industries can have unearned revenue. A software company where the company pays up front for software plus an upgrade in 1 yr. has unearned revenue. Part is recognized now, and the part attributed to the software upgrade is recognized 1 yr. later. If a company collects payment in advance, like for special orders or custom designs, the revenue is unearned until the obligation to the consumer has been fulfilled. Unearned revenue is a current liability because an asset has been received (cash) and no service has yet been performed. The company is liable to the customer to perform the service. Unearned revenue is recognized as a current liability on the balance sheet. When the revenue is earned, it is then credited (decreased) from unearned revenue and debited (increased) to earned revenue ...

Solution Summary

This solution addresses the following questions:

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?

2. What are the differences among valuation, depreciation, amortization, and depletion? Is it appropriate to calculate depreciation using two different methods? Why?

3. Which depreciation method provides you with the highest depreciation expense in the first year? Why?

4. Why do companies issue bonds? Would you rather buy a bond at a discount or a premium rate? Why? What is the determining factor of whether a bond is sold at a discount, face value, or premium?

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