Question
Required: Answer separately for each of the cases, 1. determine when the seller should recognize revenue and the catagory 2. Explain your answer using GAAP
Required: Answer separately for each of the cases,
1. determine when the seller should recognize revenue and the catagory
2. Explain your answer using GAAP revenue recognition guidelines.
3. Explain how each transaction would appear on the income statement and balance sheet for 2019.
Case 1: Your construction company entered into a four year contract to build a store for a fixed price of $7,000,000. Your estimated costs at 6,200,000. It is now the end of the 2nd year and you estimate that you are 50% complete and your estimate to complete will be 7,500,000 because of labor problems. What are the two alternative methods and based on the method :
1. When do you recognize the revenue
2. What if you estimate a total loss on the project.
3.. What if you believe that the estimated costs can be reduced and you will make an overall profit on the project.
Case 2: Your company is in the business of selling new pickup trucks that average in price from $10,000 to $15,000. The owner of the company decides to purchase an antique sports car through the company for $200,000 for future sale. How would the antique car be treated at the time of purchase and sale versus the pickup trucks? Should it be different and why?
Case 3-Your company sells a product bundle of software that includes a 3 year service contract for $100,000, The company installed the software on July 1, 2019, and the client paid $50,000 cash. The balance is due on December 31, 2019. Identify the performance obligations and the when the revenue will be recognized assuming:
(a) the performance obligations are interdependent and cannot be separated out or sold separately.
(b) the performance obligations are not interdependent ( the service contract is sold separately for $25,000 and the software can be purchased for $100,000 without the service contract.)
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