Lecture 9

Question 1

point of sale method

Answer 1

sale of product from inventory

revenue recognized when product is delivered

Question 2

completed contract

Answer 2

recognize all income when project is completed

Question 3

when to use % completion

Answer 3

1. ongoing effort reflects continuing earnings process for project
2. cost of construction can be estimated reasonably accurately
3. cash collection is virtually assured

Question 4

Estimated % of project completed to date =

Answer 4

(COST incurred to date) / (total COST for project)

Question 5

steps of % completion

Answer 5

1. % complete (cost incurred to date / total cost)
2. rev to be recognized to date = (est total rev) * (% complete)
3. current period rev = (rev to be recognized to date) - (rev recognized in prior periods)
4. gross profit = current period revenue - current costs

Question 6

is there association b/w cash received and revenue recognized?

Answer 6

NO

Question 7

Layaway sales

Answer 7

• collect cash deposit, retain merch until customer comes back and pays full

recognize sales rev upon delivery of merch to customer. until then, cash deposit should be recognized as LIABILITY

Question 8

Membership fees

Answer 8

• co charges fees for membership, customer pays at outset but can get refund

recognize on last day of membership; otherwise, the fee is not fixed/determinable anytime before

Question 9

Transaction Intermediaries

Answer 9

• company like Amazon sells something for $175 but receives $25

recognize revenue from product on NET basis (straight $25, instead of rev=$175, cogs=$150, etc)