Principles of Accounting, Volume 1: Financial Accounting

# Thought Provokers

TP 1.

LO 12.1Research a Major League Baseball team’s season ticket prices. Pick one season ticket price level and answer the following questions:

• What team did you choose, and what are the ticket prices for a season?
• What is the sales tax rate for the purchase of season tickets?
• How many games are included in the season package?
• What are the refund and exchange policies for purchases?
• What are some benefits to the team with customers paying in advance for season tickets?
• Explain in detail the unearned revenue liability created from season ticket sales.
• When does the team recognize this future revenue as earned?
• What effect does the refund or exchange policy have on the unearned revenue account, and the ability of the team to recognize revenue?
• If unearned revenue was split equally among all games (not including playoff games), how much would be recognized per game?
• Explain in detail the sales tax liability created from season ticket sales.
• When does the team collect sales tax?
• What is the final purchase price of the season ticket with sales tax?
• Where does the team recognize the sales tax liability (which statement and account[s])?
• To whom does the team pay the sales tax collected?
• When is sales tax payment required?
TP 2.

LO 12.2Review Exercise 12.1. Review current season ticket prices for one Major League Baseball team. Choose one season ticket price area to review.

1. Determine what is recognized as per ticket revenue after each game is played for your chosen season ticket price area. Assume an equal amount is distributed per game. Do not include playoff games or preseason games in your computations. If parking and other amenities are factored into the season ticket price, please continue to include them in your calculations.
2. Determine an average attendance figure for this team during the 2016 season for all seating areas, and per game (assume equal distribution of game attendance), and use this as a projection for future attendance. You may use Ballparks of Baseball http://www.ballparksofbaseball.com/2010s-ballpark-attendance/ for attendance figures.
3. Assume that attendance is distributed equally between all season ticket areas. Determine the attendance for your season ticket area for the season and per game.
4. Determine the total unearned ticket revenue amount before the season begins. Assume all season ticket holders paid with cash, in full.
5. Prepare the journal entry to recognize unearned ticket revenue at the beginning of the season for your chosen season ticket area. Assume all seats are filled by season ticket holders. Show any support calculations and documentation used.
6. Prepare the journal entry to recognize ticket revenue earned after the first game is played in your chosen season ticket area.
7. Suppose the team only records revenues every three months (at the end of each month), record the journal entry to recognize the first three months of ticket revenue earned during the season in your chosen season ticket area.
TP 3.

LO 12.3Toyota is a car manufacturer that has issued several recalls over the years. One major recall centered on faulty air bags from Takata. A prior recall focused on unintentional pedal acceleration. Research information about the car manufacturer, and one of the two recall situations described. Answer the following questions:

• What are some of the main points discussed in the supplements you researched?
• What negative impact did this recall have on Toyota?
• As a result of the recall, what contingent liabilities were (or could be) created?
• How did Toyota handle the reporting of these contingent liabilities?
• How did Toyota determine the estimated liability amounts?
• Do you agree with Toyota’s treatment assignment for reported liabilities (probable and estimable, probable and inestimable, for example)?
• What note disclosures accompanied the recognized contingent liabilities?
• What long-term effect, if any, did the recall have on Toyota’s financials and reputation?
TP 4.

LO 12.4You own a farm and grow seasonal products such as pumpkins, squash, and pine trees. Most of your business revenues are earned during the months of October to December. The rest of your year supports the growing process, where revenues are minimal and expenses are high. In order to cover the expenses from January to September, you consider borrowing a short-term note from a bank for $300,000. • Research the lending practices of a local bank. • Determine the interest rate charged for a$300,000 loan.
• What collateral does the bank require to secure the loan?
• Determine your overall payback amount if you were to repay the loan in less than one year. Choose either a payback with periodic payments or all at the end of the loan term, and compare the outcomes.
• After conducting your research, would you consider borrowing the money?
• What positive and negative outcomes accompany borrowing the money?
TP 5.

LO 12.5Payroll Comparison Research Paper: Search the Internet for local public K–12 school districts, community colleges, and public universities that publish their employees’ salary (pay) schedules. Also research any available data on employee benefits provided to each of these schools. Review federal and state taxation rates on income, unemployment, Social Security, and Medicare. Write a comprehensive paper addressing the following questions and situations. You must provide scholarly data and source information to support your claims.

• Which schools did you compare?
• How do the salaries compare for each school entity?
• What voluntary benefits were provided by the employer (school district)?
• What involuntary deductions would be taken out of these salaries?
• What would your federal, state, and local income tax rates be if you worked for one of these schools? Hint: Choose one of the salaries from the schedule.
• Create a Form W-4 to determine your tax liability.
• Assume you are the employer for your chosen school. Prepare journal entries to record January’s employee and employer payroll (assume January is the first pay period and you are preparing the entry for one employee). You must record the liabilities from the January 31 payroll, along with the payment of these liabilities on February 1.
• Record any observations you have made at the culmination of your research, and connect these observations to what you’ve learned about current liabilities.
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