Revenue Recognition

Question 1

How is revenue recognized under Installment Sales Method?

Answer 1

GP recognized = cash collected x GP% (I/S)

Deferred GP = receivable balance x GP% (B/S)

Question 2

How is revenue recognized under Percentage of Completion Method?

Answer 2

1. Estimated total profit = total contract - estimated total cost
2. % complete = costs to date/estimated total cost
3. GP to date = estimated total profit x % complete
4. GP current period = GP to date - GP recognized

Question 3

When do you recognize a loss for Percentage of Completion or Completed Contract Method?

Answer 3

Immediately

Question 4

What the criteria to use Percentage of Completion Method?

Answer 4

1. Payment is reasonably assured
2. Estimates of progress are reasonable
3. Must have sufficient evidence contract can be completed as specified

Question 5

What are rules for recording sale with right of return?

Answer 5

1. Return is not contingent on resale
2. Original seller does not have to help with resale of merchandise
3. Theft or loss does not alter obligation of the customer
4. Seller must be able to make reasonable estimation of returns