INTERMEDIATE ACCOUNTING
8th Edition
ISBN: 9780078025839
Author: J. David Spiceland
Publisher: McGraw-Hill Education
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Question
Chapter 5, Problem 5.34Q
To determine
Revenue recognized point of long term contract
A long-term contract qualifies for revenue recognition over time. The seller can recognize the revenue as per percentage of the completion of the project, which is recognized as revenue minus cost of completion until date.
If a contract does not meet the performance obligation norm, then the seller cannot recognize the revenue till the project is complete.
The revenue recognition principle
The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.
To explain: The manner in which IFRS and GAAP methods affect revenue recognition, cost of construction, and gross profit over the life of a profitable contract.
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Students have asked these similar questions
If the outcome of a long-term contract can be measured reliably, the preferred accounting method under both IFRS and US GAAP is: A . the cost recovery method.
Which statement is true when the outcome of construction contract cannot be estimated reliably?
a. Contract costs shall be recognized as an expense in the period when incurred.
b. Revenue shall be recognized only to the extent of contract costs incurred that is probable will be recoverable
c. All of these statements are true.
d. An expected loss on the construction contract shall be recognized as an expense immediately.
When percentage-of-completion accounting is not appropriate, U.S. GAAP requires the use of the completedcontract method, while IFRS requires the use of the cost recovery method. Explain how the two methods affectrecognition of revenue, cost of construction, and gross profit over the life of a profitable contract.
Chapter 5 Solutions
INTERMEDIATE ACCOUNTING
Ch. 5 - What are the five key steps a company follows to...Ch. 5 - What indicators suggest that a performance...Ch. 5 - What criteria determine whether a company can...Ch. 5 - We recognize service revenue either at one point...Ch. 5 - What characteristics make a good or service a...Ch. 5 - Prob. 5.6QCh. 5 - What must a contract include for the contract to...Ch. 5 - When a contract includes an option to buy...Ch. 5 - Prob. 5.9QCh. 5 - Prob. 5.10Q
Ch. 5 - Is a customers right to return merchandise a...Ch. 5 - Prob. 5.12QCh. 5 - Under what circumstances should sellers consider...Ch. 5 - When should a seller view a payment to its...Ch. 5 - What are three methods for estimating stand-alone...Ch. 5 - When is revenue recognized with respect to...Ch. 5 - In a franchise arrangement, what are a franchisors...Ch. 5 - When does a company typically recognize revenue...Ch. 5 - Prob. 5.19QCh. 5 - Prob. 5.20QCh. 5 - Must bad debt expense be reported on its own line...Ch. 5 - Explain the difference between contract assets,...Ch. 5 - Explain how to account for revenue on a long-term...Ch. 5 - Prob. 5.24QCh. 5 - Prob. 5.25QCh. 5 - Prob. 5.26QCh. 5 - Prob. 5.27QCh. 5 - Prob. 5.28QCh. 5 - What are the two general criteria that must be...Ch. 5 - Explain why, in most cases, a seller recognizes...Ch. 5 - Revenue recognition for most installment sales...Ch. 5 - Prob. 5.32QCh. 5 - How does a company report deferred gross profit...Ch. 5 - Prob. 5.34QCh. 5 - Briefly describe the guidelines for recognizing...Ch. 5 - Prob. 5.36QCh. 5 - Briefly describe the guidelines provided by GAAP...Ch. 5 - Prob. 5.1BECh. 5 - Timing of revenue recognition LO53 Estate...Ch. 5 - Prob. 5.3BECh. 5 - Allocating the transaction price LO54 Sarjit...Ch. 5 - Prob. 5.5BECh. 5 - Performance obligations; warranties LO55 Vroom...Ch. 5 - Prob. 5.7BECh. 5 - Prob. 5.8BECh. 5 - Prob. 5.9BECh. 5 - Prob. 5.10BECh. 5 - Prob. 5.11BECh. 5 - Variable consideration LO56 Leo Consulting enters...Ch. 5 - Prob. 5.13BECh. 5 - Prob. 5.14BECh. 5 - Prob. 5.15BECh. 5 - Payment s by the seller to the customer LO56...Ch. 5 - Estimating stand-alone selling prices: adjusted...Ch. 5 - Estimating stand-alone selling prices: expected...Ch. 5 - Estimating stand-alone selling prices; residual...Ch. 5 - Prob. 5.20BECh. 5 - Prob. 5.21BECh. 5 - Prob. 5.22BECh. 5 - Prob. 5.23BECh. 5 - Prob. 5.24BECh. 5 - Contract assets and contract liabilities LO58...Ch. 5 - Prob. 5.26BECh. 5 - Long-term contract; revenue recognition over time;...Ch. 5 - Prob. 5.28BECh. 5 - Long-term contract; revenue recognition upon...Ch. 5 - Long-term contract; revenue recognition; loss on...Ch. 5 - Prob. 5.35BECh. 5 - Prob. 5.36BECh. 5 - Prob. 5.37BECh. 5 - Prob. 5.38BECh. 5 - Prob. 5.39BECh. 5 - Revenue recognition; software contracts under IFRS...Ch. 5 - Prob. 5.41BECh. 5 - BE 5–31
Receivables and inventory turnover...Ch. 5 - Prob. 5.32BECh. 5 - Prob. 5.33BECh. 5 - Prob. 5.34BECh. 5 - Prob. 5.1ECh. 5 - Ski West, Inc., operates a downhill ski area near...Ch. 5 - Allocating transaction price LO54 Video Planet...Ch. 5 - Prob. 5.4ECh. 5 - Prob. 5.5ECh. 5 - Prob. 5.6ECh. 5 - Prob. 5.7ECh. 5 - On May 1, 2016, Meta Computer, Inc., enters into a...Ch. 5 - Prob. 5.9ECh. 5 - Variable considerationmost likely amount; change...Ch. 5 - Variable considerationexpected value; change in...Ch. 5 - Prob. 5.12ECh. 5 - Approaches for estimating stand-alone selling...Ch. 5 - E 5–14
FASB codification research
LO5–6,...Ch. 5 - Prob. 5.15ECh. 5 - FASB codification research LO58 Access the FASB...Ch. 5 - Prob. 5.17ECh. 5 - Prob. 5.18ECh. 5 - Prob. 5.19ECh. 5 - Prob. 5.20ECh. 5 - Prob. 5.21ECh. 5 - Prob. 5.22ECh. 5 - Prob. 5.23ECh. 5 - Prob. 5.24ECh. 5 - Prob. 5.25ECh. 5 - Prob. 5.26ECh. 5 - Prob. 1CPACh. 5 - Prob. 2CPACh. 5 - Prob. 3CPACh. 5 - Prob. 4CPACh. 5 - Prob. 5CPACh. 5 - Prob. 6CPACh. 5 - Prob. 7CPACh. 5 - Prob. 8CPACh. 5 - Prob. 1CMACh. 5 - Prob. 5.1PCh. 5 - Prob. 5.2PCh. 5 - Prob. 5.3PCh. 5 - Prob. 5.4PCh. 5 - Prob. 5.5PCh. 5 - Prob. 5.6PCh. 5 - Prob. 5.7PCh. 5 - Prob. 5.8PCh. 5 - Prob. 5.9PCh. 5 - Prob. 5.10PCh. 5 - Prob. 5.11PCh. 5 - Prob. 5.12PCh. 5 - Prob. 5.13PCh. 5 - Prob. 5.14PCh. 5 - Prob. 5.15PCh. 5 - Prob. 5.16PCh. 5 - Prob. 5.17PCh. 5 - Prob. 5.18PCh. 5 - Prob. 5.19PCh. 5 - Prob. 5.20PCh. 5 - Prob. 5.21PCh. 5 - Prob. 5.22PCh. 5 - Prob. 5.23PCh. 5 - Prob. 5.1BYPCh. 5 - Judgment Case 52 Satisfaction of performance...Ch. 5 - Judgment Case 53 Satisfaction of performance...Ch. 5 - Prob. 5.4BYPCh. 5 - Prob. 5.5BYPCh. 5 - Prob. 5.6BYPCh. 5 - Prob. 5.8BYPCh. 5 - Prob. 5.9BYPCh. 5 - Prob. 5.10BYPCh. 5 - Prob. 5.11BYPCh. 5 - Prob. 5.12BYPCh. 5 - Prob. 5.13BYPCh. 5 - Prob. 5.15BYPCh. 5 - Prob. 5.16BYPCh. 5 - Prob. 5.17BYPCh. 5 - Prob. 5.18BYPCh. 5 - Prob. 5.19BYPCh. 5 - Prob. 5.23BYP
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- 1. When outcome of a construction contract is estimated reliably, contract revenue and contract costs associated with the construction contract should be recognized using * A. cost recovery method B. percentage of completion method C.gross profit method D.zero profit method.arrow_forwardWhen it is probable that total contract costs will exceed total contract revenue, how shall it be accounted for? Group of answer choices The expected loss shall be recognized as an expense immediately only when the outcome of a construction contract cannot be estimated reliably. The expected loss shall be recognized as an expense immediately regardless of the certainty or uncertainty of the outcome of a construction contract. The expected loss shall be accounted for based on company’s policy. The expected loss shall be recognized as an expense by reference to the state of completion of the contract activity at the end of the reporting period when the outcome of a construction contract cannot be estimated reliably. PreviousNextarrow_forwardWhich of the following statements regarding the recognition of expenses related to long-term contracts under IFRS is true? A: General and administrative expenses are normally recognized as an asset. B: The cost of wasted resources of an abnormally high amount are recognized as an asset until the performance obligation has been met. C: If capitalized costs are no longer expected to be recovered through the contract, a portion of contract revenue should be reversed. D: Costs that will be reimbursed by the customer are recognized as an asset.arrow_forward
- This revenue recognition method usually applies to long-term construction contracts where the amount of revenue recognized is related to the progress of the work completed. O Franchise agreement O Installment method O Percentage-of-completion method O Consignment methodarrow_forwardUnder PFRS 15, what is the measurement basis of revenue from contracts with customers? Select the correct letter: A. Revocable amount of the consideration received or receivable B. Book value of the consideration received or receivable C. Fair value of the consideration received or receivable D. Historical cost of the consideration received or receivablearrow_forwardWhich of the following statements is not applicable to contract acquisition costs under ASC Topic 606 guidance for revenue recognition? Incremental costs of acquiring a contract must be capitalized and amortized over the life of the contract. Costs that would be incurred regardless of whether a contract is obtained are not capitalized. The capitalization requirement is subject to a practical expedient. Costs must be capitalized even if the amortization period is one year or less.arrow_forward
- When it is probable that total contract costs will exceed total contract revenue, how shall the long-term contractor account for the difference? The expected loss shall be recognized as an expense taking into account the percentage of completion as of the end of the period. The expected profit shall be recognized as a profit immediately. The expected loss shall be recognized as a profit taking into account the percentage of completion as of the end of the period. The expected loss shall be recognized as an expense immediatelyarrow_forwardUnder PFRS 15, when shall a consignor recognize revenue from its consignment sales? When it is probable that future economic benefits will flow to the consignor and the fair value of the revenue can be measured reliably. When the consignor receives cash remittance from the consignee. When the consignor satisfies its performance obligation under consignment contract. When the consignor enters into a consignment contract with a consignee.arrow_forwardThe cost-plus approach: a. refers to contracts that are modified from their original terms during the course of the contract. b. refers to contracts where the contractor is not expected to recover all costs incurred in completing the project. c. is not allowed under ASC Topic 606 guidance for revenue recognition. d. uses an assumed reasonable profit margin to determine the stand-alone price.arrow_forward
- Explain how to Determining Whether a Contract Exists for Revenue Recognition Purposes.arrow_forwardWhich of the following statements is true regarding contracts in ASC Topic 606 guidance for revenue recognition? Contracts need to be legally enforceable to be considered under ASC Topic 606. Contracts need to be in written form to be considered under ASC Topic 606. No consideration can be received before a contract exists. No price concessions can be made to an existing contract.arrow_forward33. Entity A enter into a long-term contract to provide service. The outcome of the transaction can be estimated reliably and the progress on the contract can be measured with sufficient reliability. According to PPSAS, how should entity A recognize revenue from the contract? On a straight-line basis over the contract term By reference to the stage of completion of the contract at the reporting date Full recognition of contract price upon completion of the contract Only to the extent of costs that are expected to be recovered.arrow_forward
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