CHAPTER 18 REVENUE RECOGNITION MULTIPLE CHOICE—Conceptual Answer No. Description
c 1. Revenue recognition principle.
b 2. Definition of "realized."
a 3. Definition of "earned."
d 4. Recognizing revenue at point of sale.
d 5. Recording sales when right of return exists.
c 6. Revenue recognition when right of return exists.
d 7. Revenue recognition when right of return exists.
b 8. Appropriate accounting method for long-term contracts.
c 9. Percentage-of-completion method.
b 10. Percentage-of-completion method.
c 11. Classification of progress billings and construction in process.
b 12. Calculation of gross profit using percentage-of-completion.
a 13. Disclosure of earned but unbilled revenues.
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E18-70 Percentage-of-completion method.
E18-71 Percentage-of-completion method.
E18-72 Percentage-of-completion and completed-contract methods.
E18-73 Installment sales.
E18-74 Installment sales.
E18-75 Installment sales.
*E18-76 Franchises.
PROBLEMS Item Description
P18-77 Long-term contract accounting—completed contract.
P18-78 Long-term construction project accounting.
P18-79 Accounting for long-term construction contracts.
P18-80 Installment sales.
CHAPTER LEARNING OBJECTIVES 1. Apply the revenue recognition principle.
2. Describe accounting issues involved with revenue recognition at point of sale.
3. Apply the percentage-of-completion method for long-term contracts.
4. Apply the completed-contract method for long-term contracts.
5. Identify the proper accounting for losses on long-term contracts.
6. Describe the installment-sales method of accounting.
7. Explain the cost-recovery method of accounting.
*8. Explain revenue recognition for franchises and consignment sales.
SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Learning Objective 1
1.
MC
2.
MC
3.
MC
55.
MC
66.
E
67.
E
Learning Objective 2
4.
MC
5.
MC
6.
MC
7.
MC
67.
E
Learning Objective 3
8.
MC
12.
MC
33.
MC
37.
MC
68.
E
72.
E
9.
MC
13.
MC
34.
MC
39.
MC
69.
E
78.
P
10.
MC
* Partial Revenue Recognition method would recognize the sale and extended warranty at the time of sale. And the rest of the contract revenue will be deferred and recognized when the contract period is complete. This method is acceptable for financial reporting in few situations. The calculation is based on the estimated cost of the product and extended warranty. This method allows the company to recognize most of the revenue at the time of sale, and allows some future revenue recognition.
Topics 1. 2. 3. 4. 5. 6. Conceptual framework– general. Objectives of financial reporting. Qualitative characteristics of accounting. Elements of financial statements. Basic assumptions. Basic principles: a. Measurement. b. Revenue recognition. c. Expense recognition. d. Full disclosure. Accounting principles– comprehensive. Constraints. Assumptions, principles, and constraints. 28, 29, 30 10 11 Questions 1, 7 2 3, 4, 5, 6, 8 9, 10, 11 12, 13, 14 15, 16, 17, 18 19, 20, 21, 22, 23 24 25, 26, 27 1, 2, 3, 4 6, 11, 13 5, 7 8, 9, 12 8 8, 12, 8, 12 1, 2 2, 3, 4 5 6, 7 6, 7 7 6, 7 6, 7, 8 9, 10 3, 6, 7 6, 7 12 5, 6 5, 6 5, 6, 7, 8, 9, 11 11 Brief
605-20-25-4, Revenue Recognition Services; acquisition of a contract and that would have not been incurred but for the acquisition of that contract shall be deferred and charge to expense in proportion to the revenue recognized.
There is a five step process to recognize revenue to depict transfers of goods or services to customers in amounts that reflect the consideration to which entity expects to be entitled in exchange for those goods and services: Identify contracts with customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price with the performance obligation in the contract and recognize revenue when or as the entity satisfies the performance obligation.
LabCo must determine if their accounting policy for the revenue treatment of its construction contracts is reasonable, if it is appropriate for LabCo to change its method of accounting for the Halibut contract from the percentage-of-completion method to the completed-contract method and how the change should be treated on the basis of the guidance provided within ASC 250, and how LabCo’s accounting policy and accounting for the Halibut contract may change under IFRS if adopted in the coming year. This memorandum will provide support for how the overall conclusion, based on the issues above, was reached.
Usually, these remaining uncertainties can be accounted for by estimating and recording allowances for anticipated returns and bad debts, thus allowing revenue and related costs to be recognized at point of delivery. But occasionally, an abnormal degree of uncertainty causes point of delivery revenue recognition not to be appropriate. Revenue recognition after delivery sometimes is appropriate for installment sales and when a right of return exists.
The changes are geared towards increasing the effectiveness of the different processes and reducing the related cost functions of the organization. The reasons for my support include the entities’ need to recognize when its revenues are made, this then makes it possible for the entity track the whole process as each aspect of the transaction is carried out. make it possible so it will be possible for the entity to track the whole process as the organization carries out the different functions. There also exists, the need to make it possible to deduct the sales tax and other taxes from the consideration that is also the price of the good or the service. Therefore, this paper will explore a discussion of the criteria of accounting for those contracts or liabilities that do not meet the set-out criteria, how the taxes are deducted from the different customers, the making of noncash considerations, and complete contracts at
Under the commonly applied milestone method, a vendor recognizes revenue in the period during which the milestone is achieved. Each milestone is essentially treated as a separate contract for accounting purposes.
4) If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as
Discuss and exemplify each of the significant terms used above through a list of meanings a non-accountant would understand. a.
Numerous business transactions have effects on different time periods. For instance, suppose Citigroup purchases a new building or Delta Air Lines purchases a new airplane; these assets are going to be used for several years. It is argued that the full cost of such items should not be expensed at the purchasing period as such items are going to be used for several subsequent years. Thus it is important to determine the effects of such transaction on particular accounting periods. However, determination of revenues amounts and expenses amounts and reporting them in any given accounting period is rather difficult (Bamber and Parry, 2014). Reporting properly demands
But with your corporation these would not be taken into consideration and with your corporation, Mr. Jones, the recommendation is the accrual method of accounting. With the accrual accounting method, the revenue is recorded when it is earned and not when the money is received. The expenses are recorded when they occur not when the payment
All PPE are stated at cost, excluding day to day services, less accumulated depreciation and amortization and any impairment in value. While land is sated at cost and is not depreciated. Necessary depreciation is computed on straight line basis over the property, plant and equipment’s useful lives. The assets depreciation, residual value, useful life and all other information which can cause the value to vary are reviewed in the year end. When assets are retired or otherwise disposed, the carrying values of those assets are removed and any gain or loss on disposal is reflected as profit or loss. Construction in progress is stated at cost and will be reclassified to the respective property, plant and equipment account when available for its intended use. The other cost incurred to obtain the PPE to function are capitalized if and only if future economic benefits will flow into the entity and can be measured reliably otherwise, the cost are expensed. The other costs may include: repairmen and replacement among the others. The PPE owned by the companies will be impaired by the group at each annual reporting period only if there is an indication of any necessary impairment. Furthermore, financial liabilities are classified as “at amortize cost”. They are derecognized when the obligation under the contract is discharged, cancelled or has expired. Finally, both the company’s
Management must understanding principles of finance for a successful corporation because it is the backbone to good decisions. A successful corporate decision will maximize wealth based on principles of financing. Valuation, cash flow, risks, depreciation, timelines, and market efficiency are some terms that manager’s assesses and monitor using the principles of accounting from the GAAP (Generally Accepted Accounting Principles). It is the profitability of a corporation and the position of a corporation that the principles gives a clear insight on how the finance of an operation functions. The principles by GAAP are created from the accrual accounting methods. The principles with accrual accounting are recognition of revenue, how expenses and revenues are matched, and rules regarding how the depreciation of equipment. These principles management must understand. The recognition of revenue is a record of transaction. There are many transactions. The transactions are title of ownership to seller, time of delivery or pickup, and an order made. Matching revenues with expenses is recognizing expenses recorded on an income statement and sales during that period. The cost of production is expenses. It is the net income understated to cash flow. It produces a idea of activities and profitabilities during a period. Also, matching revenues with expenses is matching revenues for making revenues. The depreciation of equipment
The Literature review of this study will emphasis on the related studies of revenue recognition and ratio analysis.