Exam 17: Advanced Issues in Revenue Recognition

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 not been substantially performed, which entry to record the franchise is correct?

Exhibit 17-1 In 2014, Omega Construction began work on a contract with a price of $850,000 and estimated costs of $595,000. Data for each year of the contract are as follows: -Refer to Exhibit 17-1. Under the percentage-of-completion method of revenue recognition, the net amount reported for construction in progress inventory at the end of 2015 would be

Revenue Recognition Methods: Required: For each situation indicate what method of revenue recognition would be most appropriate.

The period in which a company recognizes revenue is also the period in which it recognizes an increase in the

Exhibit 17-4 The following information is provided for Fort Myers Company: Fort Myers used the installment sales method. -Refer to Exhibit 17-4. How much deferred gross profit is still on the books at the end of 2015?

In real estate sales, what method of revenue recognition must be used if the sale is not consummated?

Under the completed-contract method of revenue recognition, the partial billings account is closed out against the

If a company has an agreement to deliver software that does not require significant production, modification, or customization of software then revenue is recognized based upon the percentage-of-completion method.

If the consignee uses a consignment-in account and has a debit balance, the

What are the advantages of using the percentage-of-completion method of revenue recognition?

It is important to understand the difference between an installment sale and the installment method of revenue recognition, which a company recognizes revenue in full at the time of the sale if collectibility is reasonably assured.

The installment and the cost recovery are methods that recognize revenue after the earnings process is complete and when realization occurs.

Exhibit 17-2 The following information relates to a project of the Cumberland Construction Company: The contract price was $1,000,000. Cumberland used the percentage-of-completion method of revenue recognition. -Refer to Exhibit 17-2. What amount of gross profit was recognized in 2014?

When revenue is recognized in the period of the sale, generally

Charleston, Inc. sold 800 contracts at $400 each. Each contract permitted the buyer to use a tin pincher 16 times and a glass finisher 20 times. Cost information follows: In the first year, the tin pincher was used 4,500 times and the glass finisher was used 4,800 times. Required: Fill in the lines below.

Exhibit 17-1 In 2014, Omega Construction began work on a contract with a price of $850,000 and estimated costs of $595,000. Data for each year of the contract are as follows: -Refer to Exhibit 17-1. Under the percentage-of-completion method of revenue recognition, the balance in Construction in Progress at the end of 2015 would be

In selecting the appropriate method of recognizing revenue, which of the following qualitative characteristics of useful accounting information is paramount to the decision?

A company may recognize revenue in full at the time of a sale if

At what point would using the cost recovery method over the installment method be appropriate?

Rising Sun, Inc. repossessed an item in 2014 with a gross profit of 15%. The fair value of the repossessed item was $11,900. The amount still unpaid was $15,000. Required: Prepare the journal entry to record the repossession of this item.