BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

Solutions

Chapter
Section
BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
1 views

Case 3-73 Recognition of Service Contract Revenue

Zac Murphy is president of Blooming Colors Inc. which provides landscaping services in Tallahassee, Florida. On November 20, 2019, Mr. Murphy signed a service contract with Eastern State University. Under the contract, Blooming Colors will provide landscaping services for all Of Eastern’s buildings for a period of 2 years beginning on January l, 2020, and Eastern will pay Blooming Colors on a monthly basis beginning on January 31, 2020. Although the same amount of landscaping services will be rendered in every month, the contract provides for higher monthly payments in the first year.

Initially, Mr. Murphy proposed that the revenue from the contract should be recognized when the contract is signed in 2019; however, his accountant, Sue Storm, convinced him that this would be inappropriate. Then Mr. Murphy proposed that the revenue should be recognized in an amount equal to the cash collected under the contract. Again, Ms. Storm argued against his proposal, indicating that generally accepted accounting principles (GAAP) required recognition of an equal amount of contract revenue each month.

Required:

Put yourself in the position of Sue Storm. How would you convince Mr. Murphy that his two proposals are unacceptable and that an equal amount of revenue should be recognized every month?

To determine

Concept Introduction:

Revenue Recognition Principle:

Revenue Recognition Principle states that the revenue should be recorded only when the goods or services are sold and delivered to the customer and the value of goods or service is determinable and collection of the money is not doubtful.

The reason behind the equal recognition of the revenue every month.

Explanation

Revenue Recognition Principle states that the revenue should be recorded only when the goods or services are sold and delivered to the customer and the value of goods or service is determinable and collection of the money is not doubtful.

Mr. Murphy would like to recognize the contract revenue earlier rather than later in order to improve the profitability for earlier year...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

For any events A and B with P(B) 0, show that P(A|B) + P(A|B) = 1.

Probability and Statistics for Engineering and the Sciences

Who are some of the basic users of financial statements, and how do they use them?

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

What rights do stockholders have?

Foundations of Business (MindTap Course List)

Describe the Big Data phenomenon.

Database Systems: Design, Implementation, & Management

Identify six major branches of artificial intelligence.

Principles of Information Systems (MindTap Course List)

Explain the differences among data, information, and a database.

Database Systems: Design, Implementation, & Management

Describe the operation of a digital EGR valve.

Automotive Technology: A Systems Approach (MindTap Course List)

Identify and list at least ten different materials that are used in a car.

Engineering Fundamentals: An Introduction to Engineering (MindTap Course List)

Convert 10,000 ft-lbf of energy into BTU, Joules, and kilojoules.

Fundamentals of Chemical Engineering Thermodynamics (MindTap Course List)

To retrieve or select data in a database, you query it. (511)

Enhanced Discovering Computers 2017 (Shelly Cashman Series) (MindTap Course List)