Question
1) (Recognition of Revenue ? Theory) Revenue is usually recognized at the point of sale. Under special circumstances, however, bases other than the point of
1) (Recognition of Revenue ? Theory) Revenue is usually recognized at the point of sale. Under special circumstances, however, bases other than the point of sale are used for timing of revenue recognition.
Instructions:
a)Why is the point of sale usually used as the basis for the timing of revenue recognition?
b)Disregarding the special circumstances when basis other than the point of sale are used, discuss the merits of each of the following objections to the sale basis of revenue recognition:
1.It is too conservative because revenue is earned throughout the entire process of production.
2.It is not conservative enough because accounts receivables do not represent disposable funds, sales returns and allowances may be made, and collections and bad debt expense may be incurred in a later period.
c)Revenue may also be recognized (1) during production and (2) when cash is received. For each of these two bases of timing revenue recognition, give an example of the circumstances in which it is properly used and discuss the accounting merits of its use in lieu of the sales basis.
(AICPA Adapted)
2) (Comprehensive Problem ? Long-term contracts) You have been engaged by Buhl Construction Company to advise it concerning the proper accounting for a series of long-term contracts. Buhl commenced doing business on January 1, 2014. Construction activities for the first year of operations are shown below. All contract costs are with different customers, and any work remaining at December 31, 2014, is expected to completed in 2015.
**DATA - See on attached document**
Instructions:
a)Prepare a schedule to compute gross profit (loss) to be reported, unbilled contract cost and recognized profit, and billing in excess of cost and recognized profit using the percentage-of-completion method.
b)Prepare a partial income statement and balance sheet to indicate how the information would be reported for financial statements purposes.
c)Repeat the requirements for part (a), assuming Buhl uses the completed-contract-method.
d)Using the responses above for illustrative purposes, prepare a brief report comparing the conceptual merits (both positive and negative) of the two revenue recognition approaches.
3) Bridge To The Profession ? Professional Research: FASB Codification
Employees at your company disagree about the accounting for sales return. The sales manager believes that granting more generous return provisions can give the company a competitive edge and increase sales revenue. The controller cautions that, depending on the terms granted, loose return provisions might lead to non-GAAP revenue recognition. The company CFO would like to research the issue to provide an authoritative answer.
Instructions:
If your school has a subscription to the FASB Codification, go to http://aaa.hq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.
a)What is the authoritative literature addressing revenue recognition when right of return exist?
b)What is meant by ?right of return??
c)When there is a right of return, what conditions must the company meet to recognize the revenue at the time of sale?
d)What factors may impair the ability to make a reasonable estimate of future returns?
1) (Recognition of Revenue - Theory) Revenue is usually recognized at the point of sale. Under special circumstances, however, bases other than the point of sale are used for timing of revenue recognition. Instructions: a) Why is the point of sale usually used as the basis for the timing of revenue recognition? b) Disregarding the special circumstances when basis other than the point of sale are used, discuss the merits of each of the following objections to the sale basis of revenue recognition: 1. It is too conservative because revenue is earned throughout the entire process of production.1 2. It is not conservative enough because accounts receivables do not represent disposable funds, sales returns and allowances may be made, and collections and bad debt expense may be incurred in a later period. c) Revenue may also be recognized (1) during production and (2) when cash is received. For each of these two bases of timing revenue recognition, give an example of the circumstances in which it is properly used and discuss the accounting merits of its use in lieu of the sales basis. (AICPA Adapted) 2) (Comprehensive Problem - Long-term contracts) You have been engaged by Buhl Construction Company to advise it concerning the proper accounting for a series of long-term contracts. Buhl commenced doing business on January 1, 2014. Construction activities for the first year of operations are shown below. All contract costs are with different customers, and any work remaining at December 31, 2014, is expected to completed in 2015. Instructions: a) Prepare a schedule to compute gross profit (loss) to be reported, unbilled contract cost and recognized profit, and billing in excess of cost and recognized profit using the percentage-of-completion method. b) Prepare a partial income statement and balance sheet to indicate how the information would be reported for financial statements purposes. c) Repeat the requirements for part (a), assuming Buhl uses the completed-contract-method. d) Using the responses above for illustrative purposes, prepare a brief report comparing the conceptual merits (both positive and negative) of the two revenue recognition approaches. 3) Bridge To The Profession - Professional Research: FASB Codification Employees at your company disagree about the accounting for sales return. The sales manager believes that granting more generous return provisions can give the company a competitive edge and increase sales revenue. The controller cautions that, depending on the terms granted, loose return provisions might lead to non-GAAP revenue recognition. The company CFO would like to research the issue to provide an authoritative answer. Instructions: If your school has a subscription to the FASB Codification, go to http://aaa.hq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses. a) What is the authoritative literature addressing revenue recognition when right of return exist? b) What is meant by \"right of return\"? c) When there is a right of return, what conditions must the company meet to recognize the revenue at the time of sale? d) What factors may impair the ability to make a reasonable estimate of future returnsStep by Step Solution
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