Exam 17: Advanced Issues in Revenue Recognition

The deferral method is usually associated with

The proportional performance method is usually associated with

Which of the following revenue recognition methods can be used by long-term construction companies in most circumstances?

Which of the following situations would require the recognition of revenue to be deferred?

On April 15, 2014 Pandora shipped 15 various pieces of furniture to By Design Company for a total of $12,500 plus shipping of $50 a piece. The furniture had a cost of 5 pieces for $500 each and 10 pieces for $1,000 each. Payment was required at year end for any furniture sold. On December 31, 2014, the consignee reported that it sold all 5 of the $500 pieces for $1,250 each and 5 of the $1,000 pieces for $1,850 each. The consignee paid Pandora under the agreement less a 10% commission fee and advertising costs of $1,500. Required: 1) Prepare the 2014 journal entries for By Design. 2) Prepare the 2014 journal entries for Pandora.

Alternative methods of revenue recognition are used because these methods increase the

Realization occurs when

Exhibit 17-5 Kusick Co. sold a franchise at an initial franchise fee of $15,000. A down payment of $4,800 was received with the balance covered by the issuance of a $10,200, 6% note payable by the franchisee in four equal annual installments. The refund period has expired and the collectibility of the note is reasonably assured. -Refer to Exhibit 17-5. If all material services have been substantially performed, which entry to record the franchise is correct?

Which of the following methods could not be used to recognize revenue on a real estate sale?

Net assets increase from cost to selling price when revenue is recognized

The percentage-of-completion method of revenue recognition is more

IFRS provide guidance that differs from GAAP regarding the procedures to use in construction contracts' future costs estimates. Discuss how the treatments differ.

A client in the software industry comes to you for an explanation of how to recognize revenue from the sale of software. The company does not provide any services related to the software, but has agreements to deliver software. Required: Explain how the presence or absence of significant production, modification, or customization affects revenue recognition for agreements to deliver software.

What three methods recognize revenue at the point the earnings process is completed?

IFRS and GAAP will sometimes differ in the method of revenue recognition applied to construction contracts. Three different methods are involved: percentage of completion, cost recovery, and completed contract. The fastest to slowest revenue recognition among the methods is

Which one of the following entries would you probably not see if an entity used the percentage-of-completion method?

If Consignment-out has a debit balance, the account should be disclosed on the balance sheet as a(n)

In early 2014, the Key West Company signed a contract for construction of an industrial park to be completed in three years. At that time, estimated total costs were $2,250,000, and estimated total revenues were $4,000,000. During 2014, Key West incurred costs of $960,000 and collected $1,100,000. In December 2014, Key West recalculated total costs for the project to be $3,200,000 while estimated total revenues remained unchanged. What amount of profit (loss) should be recognized by Key West for 2014, using the percentage-of-completion method?

A new construction company owner comes to you for advice on how to account for the first long-term construction project his company has been awarded. He is under the impression that he can use either the completed-contract or the percentage-of-completion methods in all circumstances. Required: Explain to your client when each method is required.

Your friend, a college marketing major, has started a marketing research consulting firm. He has already started working for his first client. When setting up his accounting system he wants to fully understand the theoretical issues associated with recording revenue. What do you advise?