Exam 4: Revenue and Recognition

In July,Telly-Rental sells a home theatre for $1,000 on an installment basis.Telly-Rental generally earns a gross margin of 25%.The customer pays $500 in December.How much revenue is recorded by Telly-Rental in December?

Which of the following best explains what recognition means in financial reporting?

Soorya Manufacturing makes educational toys that are sold to retailers on the following contractual terms: Each type of toy has a fixed wholesale price,is shipped F.O.B.shipping point,and payment is due 45 days after the shipment.The retailer may return a maximum of 45% of an order at the retailer's expense up to 6 months after delivery.Sales are made only to retailers that have a good credit rating. Required: a)Identify at least four different revenue recognition points that Soorya could use for its sales. b)What revenue recognition criteria should Soorya use to determine when revenue should be recorded?

How is revenue recognized on a cost plus 7% contract?

The publisher of TV Weekly received the following 52-week subscriptions during the first quarter of fiscal 2018.Each subscription is $110,which is a 47% discount off the newsstand price of $4 per issue.Each subscription becomes effective in the calendar month after the company receives the subscription.The company has a December 31 fiscal year.What amount of revenue will the company record in 2018 for the subscriptions received in January? (Round your response to the nearest dollar).

A city transit authority issues 200,000 monthly passes at $80 each for sale at various retailers.Retailers act as consignees for these passes.Identify why the transit authority cannot recognize revenue at time of distribution.

Explain how the timing of revenue recognition is affected by multiple performance obligations in the arrangement.Explain how revenue is ultimately recognized in a multiple performance obligations sales arrangements.

In the chart below,identify the revenue recognition method that you feel is most appropriate and also explain why.

WestCoast Co.started a contract in June 2017 to build a bridge at a fixed price of $14 million.The bridge was to be completed by October 2019.Total cumulative costs incurred by the end of December 2017 and 2018 were $2 million and $6 million,respectively.WestCoast Co.is unable to estimate the total costs of the project prior to completion.Final costs at the end of the project totaled $11 million. Required: Determine the amount of revenue,cost of sales,and gross profit WestCoast Co.would report in 2017,2018,and 2019.

Nichols Construction Company (NCC)entered into a contract to build a shopping complex for $1,900,000.Construction commenced on July 1,2017,with a planned completion date of December 31,2019.A summary of the related accounting information is provided below: How much would the balance in accounts receivable be on the balance sheet of NCC at the end of 2019 if NCC uses the percentage of completion method?

Pool Contractors (PC)entered into a contract to build a solar heated swimming complex for $1,800,000.Construction commenced on July 1,2017,with a planned completion date of December 31,2019.A summary of the related accounting information is provided below: How much gross profit would be recognized in fiscal 2018 if PC uses the percentage of completion method?

Early in 2018,Forest Ltd.signed a contract to construct a warehouse.Forest's management estimated the gross profit on the contract to be $740,000,as indicated by the following: At the end of 2018,the status of the work on the contract was as follows: How much revenue can be recognized on this contract for 2018,assuming that Forest uses the Percentage of completion basis for long-term construction contracts (round to nearest dollar)?

Destiny Apartments Inc.(DA Inc. )is building a luxury condominium for a contract price of $68,000,000.This is estimated to be a three-year project with an estimated cost of $54,000,000.DA Inc.uses the percentage of completion method of revenue recognition,using the cost-to-cost method of estimating the percentage complete.The following is the best available information at the end of each year: Required: a.Explain how the percentage completion method reduced information asymmetry and guards against moral hazard. b.Compute the amount of gross profit to be recognized in Year 1,Year 2,and Year 3.Show computations in tabular form provided below: c.Complete the PARTIAL Balance Sheet for Year 2. Current assets Current Liabilities

Southtel is a builder of large digital networks.In the midst of the high-tech euphoria,the company bid and won a $48,000,000 contract to build a network for the country of Elbonia.Details on the project over the last three years are as follows: Required: Calculate the amount of revenue,cost of goods sold (COGS),and gross profit (or loss)to be recognized in each of the three years.The company uses the percentage of completion method to account for long-term contracts.Record your answer in the following table.

Which formula explains how gross profit is recognized when an overall loss is expected on the contract under the percentage completion method?

Through non-subscription sales,TV Weekly provides retailers with a 50% margin (or 100% mark up)on its magazines.The newsstand price is $8 per issue.During 2018,the company distributed 1,654,000 copies to retailers,not all of which were sold.Retailers sent a total of 390,000 unsold copies back to the publisher,of which 30,000 copies were for last two issues published in 2017.In January 2019,the company received 27,000 unsold copies for magazines published in the last weeks of December 2018. Required: Determine the amount of revenue from non-subscriptions TV Weekly should recognize in 2018.

Explain why a company should allocate revenue to multiple performance obligations in a sales transaction even if the company delivers all of the products or services in the same accounting period.

The adjusted market assessment approach which involves estimating what a customer would be willing to pay for the good or service or what competitors charge for a similar good or service.

Which of the following is TRUE when goods are sold on consignment?

Jones Contractors Inc.agreed to construct a building for $500,000.Construction commenced in 2017 and was completed in 2019. Required: For each of the three years,determine the following amounts relating to the above contract: revenue,expenses,gross profit,accounts receivable balance,and construction-in-process inventory balance.