Revenue Recognition (F2)

Question 1

Escrow accounts liability

Answer 1

Escrow liability 700,000
\+ Payments received 1.58 m 
- tax paid 1.72 m
\+ interest 50,000
- service charge 5,000
= 605,000

Question 2

Percentage of Completion

Answer 2

Contract 18
Costs incurred 5.4
Estimated remaining 10.8
% complete = 5.4 / (5.4 + 10.8) = 33%
33% * 18 = 600,000 recognized year 1

Question 3

Installment Method

Answer 3

Price 50,000 - BV 30,000 = GP 20,000
20,000 / 50,000 = GP 40%
40% * 15,000 cash collected year 3 = 6,000 GP

*Deferred GP = Installment receivable * GP%