Problem 1 | | | | | | | | | | | | | | | | | | | | | | | | (A) We have studied several methods of revenue recognition. Define and describe each of the following methods of revenue recognition, and indicate whether each is in accordance with generally accepted accounting principles. | | Point of Sale - is when the sale has occurred. You will recognize the sale at delivery, in the time period the product switched hands. This is GAAP apporved. | | | | | | | | Completion of production - is when the product is done being made. Under this type of revenue recognition the business usually has a contract with it's buyers to pick up the product and also an amount of product to be purchase. | Percentage of completion - is used in situations such as construction, building a new apartment high rise. The book states a, "company accumulates construction costs plus gross profit earned to date in an inventory account
Kieso. Intermediate Accounting, 14th Edition. John Wiley & Sons. <vbk:9781118233641#outline(18.5)>. | (Construction in Process), and it accumulates progress billings in a contra inventory account (Billings on Contrustion in Process)." (1081) | Installment sales - can be used in situations such as, buying home furiniture and making installment payments. You would consider this as sold but not collected. When the money is received you then will recognized the sale. | | | | | | | | | | | | | | | | | | | | | | | | | (B) Calculate the revenue to be recognized in fiscal year 2012 for each division of Patty Corporation in accordance with generally accepted accounting principles. Show all calculations for full credit. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pat's Division - the answer to this is 2,400,000 because they use point of sale. | | | | | | |