Revenue Recognition

Question 1

5 Steps of Revenue Recognition

Answer 1

• Identify the contract with a customer
• Identify the performance obligation(s) in the contract.
• Determine the transaction price.
• Allocate the transaction price to the performance obligation(s) in the contract.
• Recognize revenue when the entity satisfies the performance obligation(s).

Question 2

O’Hara Corp. sold goods for $5,000 that had a cost of $3,000. The customer immediately accepted and took possession of the goods and paid for the goods using cash

Answer 2

Cash 5,000
—–Sales Revenue 5,000

COGS 3,000
—–Inventory 3,000

Question 3

Contract Liability

Gator Company entered into a contract with Croc Company to transfer product to Croc Company for a sales price of $50,000. The product has a cost of $35,000. Croc Company paid Gator Company the full $50,000 sales price in advance

Answer 3

Date Cash is Received

Cash 50,000
——Unearned Sales Revenue 50,000

Date Obligation is satisfied

Unearned Sales Revenue 50,000
———-Sales Revenue 50,000

COGS 30,000
—–Inventory 30,000

Question 4

Contract Asset

Hamilton Company entered into a contract with Burr Company to transfer two products to Burr Company for a sales price of $950,000. The contract requires the delivery of Product 2 before payment on Product 1 will be remitted. Delivery of Product 1 will occur first and delivery of Product 2 will occur second. Product 1 has a sales price of $600,000 and Product 2 has a sales price of $350,000. Hamilton delivers Product 1 to Burr on April 2, 20X9 and delivers Product 2 to Burr on June 30, 20X9.

Answer 4

On April 2, 20X9, after Hamilton delivers Product 1

Contract Asset 600,000
—–Sales Revenue 600,000

On June 30, 20X9, after Hamilton delivers Product 2

Accounts Receivable 950,000

• ———Contract Asset 600,000
• ———Sales Revenue 350,000

Question 5

If one of the obligations requires unique knowledge

Answer 5

If the person contracting doesn’t have knowledge then it is not an obligation, but if they do have necessary knowledge then it is a separate obligation

Question 6

How to get blended price

Answer 6

• Multiply each remaining product by its original contract price then add
• Divide that by number of products remaining

Question 7

Percentage of Completion - Construction

Answer 7

1. ) Degree of Completion: Cost to Date divided by Estimated Total Cost
2. ) Profit to Date: Degree of Completion multiplied by Expected total profit
3. ) Profit Recognized in Current Year: Profit to Date subtracted by previously recognized profit

Question 8

Progress Billings Journal Entry

Answer 8

Accounts Receivable

—–Construction in Process

Question 9

Construction Costs Journal Entry

Answer 9

Construction in Progress

———-Cash, Payable, Material

Question 10

Construction in Progress Debit & Credit for T Account

Answer 10

• Billings is a credit and costs are debited
• If costs + Profit(loss) > Billing then you have an asset
• If costs + Profit(loss) < Billings then you have a liability