(Evaluating when to recognize revenue to try to achieve an objective of financial reporting, LO 1, 2, 3, 6, 7) For each of the following independent situations, recommend how you would want to recognize revenue if you were the president of the company, you received a significant bonus based on net income, and your objective of financial reporting was to receive as high a bonus as is reasonably possible.

Support your answer. (To respond you should identify alternative points for recognizing revenue and choose the one that best satisfies the objective of achieving a high bonus and can be reasonably supported.)

a. A construction company signs a contract to build a warehouse for a food distribution company. The project is to take 18 months from the signing of the contract and the construction company will receive $10,000,000. At the construction company’s fiscal year end 60% of the project has been completed.

b. An investment company purchases shares of publicly traded companies for its portfolio. During the year, the market value of the portfolio increases from

$2,300,000 to $3,745,000. None of the shares were sold during the year.

c. A national bus company sells passes that allows the passenger unlimited travel on the company’s buses for 60 days from the day the pass is first used. Passes must be purchased at least 90 days before they are first used. Once purchased, the passes are not refundable.

d. A computer software company sells a software package that entitles the owners to receive the next two upgrades of the package at no additional charges plus technical support for 18 months from the date of purchase.

e. A law firm charges clients who wish to have legal advice available to them 24 hours a day, seven days a week, a fee of $10,000 per year for the service. (The

$10,000 fee is simply for the privilege of having a lawyer available all the time.

These clients then have to pay the lawyer’s hourly rate for the advice given.)