1. Telecom Ltd is a telecommunication company. It has a 4 year license to provide communication services to a corporation. The total amount of the license fee that Telecom Ltd will receive is $50,000. Revenue is recognized on a prorated basis as it is a long term contract. What revenue would Telecom Ltd recognize at the end of year 1?
2. During 2013, Company A sold a piece of land with a cost of $3 million to Company B for $5 million. Company B made a $1 million down payment with the remaining balance to be paid over the next 5 years. It has been determined that there is significant doubt about the ability and commitment of the buyer to complete all payments. Company A would most likely report a profit in 2013 of:
A. $2 million using the accrual method.
B. $0.4 million using the installment method.
C. $1 million using the cost recovery method.
3. An analyst is estimating the net profit margin of a manufacturing company for next year. The method he adopts is to average the net profit margin for the past five years. Which of the following statements is most likely accurate with respect to the items used for his projections?
A. He must not include the gain on sale of investments, as it is a manufacturing firm.
B. He uses the most recent year’s tax rate, which was only 60% of the previous two years’ rate.
C. He must include the losses incurred due to discontinued operations in each of the five years.
Tomorrow’s questions will be on the topic of R26 Understanding Balance Sheets