Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Instructions: Consider the following revenue recognition scenarios. For each scenario, determine when and how revenue should be recognized according to the relevant accounting standards and
Instructions: Consider the following revenue recognition scenarios. For each scenario, determine when and how revenue should be recognized according to the relevant accounting standards and principles. Explain your reasoning in each case. The first scenario should be an example of how the question should be addressed.Example:Scenario: Company XYZ a software development company, sells a software license to a customer for $ The customer pays the full amount upfront, and the software is delivered immediately. However, the company provides free software updates and technical support for one year.Solution: Revenue should be recognized for the software license upfront, as the delivery has taken place, and the company has met its performance obligations. The free software updates and technical support should be accounted for separately and recognized over the oneyear period as service revenue.Scenario ExercisesScenario : Company ABC, an apparel retailer, offers store gift cards to customers for future stores purchases. The gift cards have no expiration date and can be redeemed for merchandise at any time. During the current accounting period, $ worth of gift cards are sold to customers.Scenario : Company DEF, a construction company, enters into a contract to build a commercial building for a client. The project is expected to take two years to complete, and the contract price is $ million. The company estimates that it will incur costs of $ million in the first year and $ million in the second year.Scenario : Company PQR an online subscription service, offers monthly subscriptions to access its premium content. Customers are billed $ per month, and the service is provided on a monthtomonth basis. During the current month, the company has active subscribers.Scenario : Company DEF, a construction contractor, receives a large advance payment from a client to fund a project. The company recognizes the full amount as revenue immediately, despite not having performed any work or meeting any revenue recognition criteria. The company plans to use the advance payment for other purposes.
Instructions: Consider the following revenue recognition scenarios. For each scenario, determine when and how revenue should be recognized according to the relevant accounting standards and principles. Explain your reasoning in each case. The first scenario should be an example of how the question should be addressed.Example:Scenario: Company XYZ a software development company, sells a software license to a customer for $ The customer pays the full amount upfront, and the software is delivered immediately. However, the company provides free software updates and technical support for one year.Solution: Revenue should be recognized for the software license upfront, as the delivery has taken place, and the company has met its performance obligations. The free software updates and technical support should be accounted for separately and recognized over the oneyear period as service revenue.Scenario ExercisesScenario : Company ABC, an apparel retailer, offers store gift cards to customers for future stores purchases. The gift cards have no expiration date and can be redeemed for merchandise at any time. During the current accounting period, $ worth of gift cards are sold to customers.Scenario : Company DEF, a construction company, enters into a contract to build a commercial building for a client. The project is expected to take two years to complete, and the contract price is $ million. The company estimates that it will incur costs of $ million in the first year and $ million in the second year.Scenario : Company PQR an online subscription service, offers monthly subscriptions to access its premium content. Customers are billed $ per month, and the service is provided on a monthtomonth basis. During the current month, the company has active subscribers.Scenario : Company DEF, a construction contractor, receives a large advance payment from a client to fund a project. The company recognizes the full amount as revenue immediately, despite not having performed any work or meeting any revenue recognition criteria. The company plans to use the advance payment for other purposes.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started