Hello
Can anyone help me with unearned rev tech question?
Given situation: A company was told to build a house worth $100 for the next five years. The company received lump-sum of $100 in cash when it won the contract, before building the house. What would be the company's 3FS at the time of contract & at the end of year 1. (Assume EBIT margin 50%, Tax rate 40%)
I'm still not sure if 1) unearned revenue would be accounted into cash flow from operations and 2) whether i should consider tax at the time of contract or not
My answer: Y0 (Time of contract) N/A Cash flow from operations up by 100 (Unearned revenue)
Asset - Cash +100 / Liabilities - Unearned rev +100
Y1 (End of year 1)
Revenue +20 EBIT +10 NI + 6
NI +6 CFO -20 (Decrease in Unearned revenue) --> Cash - 14
Asset (Cash) 100 -14 = 86 balance / Liabilities (Unearned revenue) 100 -20 = 80, Equity (Retained earnings) +6 -> Balance: +86.
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