Part 4: Revenue Recognition

Worth More Industries is split into two different divisionsClear Water Pools and Madoff Securities. Each operates with its own accounting system and revenue recognition method.

Clear Water Pools

For fiscal year ending November 30, 2018, Clear Water Pools worked on one construction project. It was awarded a contract for $1,650,000 on May 18, 2018, to construct a swimming pool, and the construction started on June 19, 2018. Its estimated completion costs were $1,375,000 for a 2-year time period that started at the date of the contract. On November 30, 2018, $429,000 of construction costs had been incurred and $522,500 progress billings had been made. On November 30, 2018, the construction costs to complete the project were reviewed and the estimated amount was $891,000, which was lower than projected. The change was due to a decline in raw material costs. Revenue recognition is based upon a percentage-of-completion method.

Madoff Securities

Madoff Securities uses manufacturers agents who forward orders for alarm systems and the down payments. Madoff then ships its products from the factory to customers directly. The balance due is then billed directly to the customer, including shipping costs. Orders for $3,300,000 were received during the fiscal year ending November 30, 2018. Madoff received $330,000 in down payments; it billed $2,860,000 for goods and $55,000 in freight costs. Manufactures agents are paid a 10% commission on product price once goods are shipped to the customer. Madoff offers a 90-day warranty on goods after shipment, and the returns have been about 1% of sales. Revenue is recognized at the point of sale by this division.