Lucent Technologies-Revenue Recognition Case Essays

Decent Essays
a) -Revenues are inflows of assets or settlements of liabilities or both. Revenues come from activities of the entity’s central operations. -Gains are increases in net assets and from peripheral or incidental transactions of an entity. -The difference between gains and revenues depend to a great extent on the typical activities of a company. For example, when McDonald’s sells a hamburger, it records the selling price as revenue. However, when Mc Donald’s sells land, it records any excess of the selling price over book value as a gain. b) -In cash basis accounting, revenues are simply recognized when cashed is received no matter when and how the services were performed or goods delivered. -In accrual basis accounting, revenues…show more content…
e) Debit Account Receivable $12,321,000,000 Credit Products Revenue $9,632,000,000 Credit Services Revenue $2,689,000,000 f) i) Lucent would recognize $12,323,000,000 ($12,321,000,000+$2,000,000) in total revenue in fiscal 2002. Record the receipt of the initial payment Debit Cash $2,000,000 Credit Revenue $2,000,000 ii) The sale recognized on June 30, 2002 because the equipment has been installed, tested, and accepted by the customer. And the collection is receivable. iii) Lucent could defer revenue and related costs when it was uncertain as to whether it would be able to collect the receivable. If Lucent determined the collection of the receivables was unlikely, it would defer revenue but recognize costs. iv) Because this is sales service on long-term contract, Lucent would use the percentage of completion method of accounting, which means Lucent would recognize the sales and service had been completed until 09/30/02 for fiscal 2002. Lucent has determined that most equipment is generally installed by Lucent within 90 days, but can be installed by the customer or a third party, as a result, over the two following years, revenue should be recognized when title passes to the customer, which on the delivery of the equipment, provided if all other revenue recognition criteria are
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