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M5-15. Assessing Revenue Recognition of Companies Match each of the following companies, to the appropriate revenue recognition policy, listed below. a. The GAP: The GAP

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M5-15. Assessing Revenue Recognition of Companies Match each of the following companies, to the appropriate revenue recognition policy, listed below. a. The GAP: The GAP is a retailer of clothing items for all ages. b. GlaxoSmithKline: GSK develops, manufactures, and markets pharmaceutical products, It sells its drugs (many of which have regulated expiry dates) to retailers such as CVS and Walgreens c. Deere & Company: Deere manufactures heavy equipment. It sells equipment to a network of indepen- dent distributors, who in turn sell the equipment to customers. Deere provides financing and insurance services both to distributors and customers. d. Bank of America: Bank of America is a banking institution. It lends money to individuals and corpora- tions and invests excess funds in marketable securities. e. Johnson Controls: Johnson Controls manufactures products for the government under long-term contracts. 1. The performance obligation is to build and complete projects for specific customers. Revenue is rec- ognized for long-term construction contracts under the percentage-of-completion method, typically using cost-to-cost method to identify the percentage of the project that is complete. 2. The performance obligation is fulfilled when the customer takes delivery of the merchandise and the right of return period for regulated products has expired or costs of returns can be reasonably estimated. The company will also establish an allowance for uncollectible accounts receivable when revenue is recognized. 3. The performance obligation is recorded when the customer takes the merchandise (for in-store sales) or when the goods are delivered (for online sales). The company estimates product returns and records an allowance at the time of sale. 4. The performance obligation is fulfilled when the customer takes the merchandise. The company will also establish allowances for product returns, uncollectible accounts, and a reserve for anticipated warranty costs. Revenues for financial or insurance services are recognized when the services are provided. 5. The performance obligation is fulfilled with the passage of time. Interest is earned by the passage of time. Each period income is accrued on loans even if customers have not yet paid the interest

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