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Assignment Week 5-6
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<!DOCTYPE html PUBLIC "-//ABISOURCE//DTD XHTML plus AWML 2.2//EN" "http://www.abisource.com/2004/xhtml-awml/xhtml-awml.mod"><html xmlns="http://www.w3.org/1999/xhtml" xmlns:awml="http://www.abisource.com/2004/xhtml-awml/"> <head> </head> <body> <div> <p style="text-align:center"> <span style="font-weight:bold;font-size:12pt;font-family:'Times New Roman'">Mini-Cases on Revenue Recognition</span> </p> <p> <span style="font-weight:bold;font-size:12pt;font-family:'Times New Roman'">Case B: Revenue Recognition: Timing</span> </p> <p> <span style="font-weight:bold;font-size:12pt;font-family:'Times New Roman'">Under current GAAP, how much revenue should Construction Company, Boat Builder and BMW recognize in 2012 and 2013?</span> </p> <p> <span style="font-size:12pt;font-family:'Times New Roman'">Revenue is an important aspect of the financial statements of a company because it is one measurement of the company’s success and performance. It is also one part of the matching principle utilized by U.S. GAAP (Generally Accepted Accounting Principles) in the accrual basis of accounting. The matching principle states XXXX expenses XXXX be recognized in the period in which they XXXXX XXX the revenues XXXXXXX XX those XXXXXXXX are earned. XXX XXXXXXXX principle and XXX XXXXXXX recognition XXXXXXXXX are closely XXXXXXX. XXXXXXX is required XX XX XXXXXXXX when it XXX XXXX XXXXXX XXXXXXXXX to the XXXXXXX recognition XXXXXXXXX.</span> </p> <p> <span style="font-XXXX:XXXX;XXXX-family:'XXXXX New Roman'">Under current XXXX revenue XX XXXXXXXXX XXXXXXXX and XXXXXX XXXX the XXXXXXXXX XXXXXXXX are met:</span> </p> <p> <span style="font-size:12pt;XXXX-XXXXXX:'XXXXX New Roman'">1. XXXXXXXX evidence of an XXXXXXXXX exists,</span> </p> <p> <span style="font-size:12pt;XXXX-family:'XXXXX XXX XXXXX'">2. A delivery has been made or services XXXX been provided,</span> </p> <p> <span style="font-XXXX:XXXX;font-family:'XXXXX New Roman'">X. XXX seller’s XXXXX XX XXX buyer is fixed, or XXXXXXXXXXXX, XXX</span> </p> <p> <span style="font-size:12pt;XXXX-XXXXXX:'Times XXX XXXXX'">X. Collection of XXX XXXXXX XXX XX reasonably guaranteed” (XXX XXXXX Accounting Bulletin XXX, 1999).</span> </p> <p> <span style="XXXX-size:XXXX;XXXX-XXXXXX:'XXXXX New Roman'">XX the case of Construction XXXXXXX the XXXXXXX is not XXXXXXXXXX immediately because BB pays in XXXXXXX XX XXX XXXXXXX-generating process. It is XXXXXXXX XXXX contract XXX XXXX XXXXXXXXXX XXXX a BB. XXXXXXX will XXXX to XX recognized when (or XX) a performance obligation XX XXXXXXXXX by the Construction XXXXXXX. This XXXXXXX XXXXXXX is XXXXXXXXXX as a liability not revenue in XXX books of Construction Company.</span> </p> <p> <span style="XXXX-size:12pt;XXXX-XXXXXX:'Times New XXXXX'">In this XXXX we don't XXXX the XXXXXXXXXX completion; XXXXXXX XXXX be XXXXXXXXXX based on time.</span> </p> <p> <span style="font-size:XXXX;XXXX-XXXXXX:'XXXXX New XXXXX'">The contract has to XX completed in 9 months.</span> </p> <p> <span style="XXXX-size:12pt;XXXX-XXXXXX:'Times New XXXXX'">By the end XX XXXX, X months XXX XXXXXXX.</span> </p> <p> <span style="font-XXXX:XXXX;XXXX-family:'XXXXX New XXXXX'">Revenue to XX XXXXXXXXXX in XXXX = $200,XXX x X/X = $XX,666.XX</span> </p> <p> <span style="XXXX-XXXX:XXXX;font-XXXXXX:'Times XXX XXXXX'">The contract is completed on July XXX instead of June 30th; XXXXXXXXX, a week's penalty XXXXX be XXXX. But this XXX't XXXXXX XXX XXXXXXXX price for revenue.</span> </p> <p> <span style="XXXX-size:XXXX;font-family:'XXXXX New XXXXX'">Revenue to be recognized in 2013 = $200,XXX - $66,666.XX = $133,333.33</span> </p> <p> </p> <p> <span style="font-size:12pt;font-XXXXXX:'Times New Roman'">XX second case XX XXXX XXXXXXX XXXXXXX the XXXXXXX XXXX only incurred when XXXXXXXX of the boat along XXXX title XX XXXXXXXX XX XXXX. XXXX XX XXX XX the mandatory XXXXXXXXXX in recognizing XXXXXXX under GAAP. XX XXXX case, the customer is under XX obligation to pay XXXXXXX until XXX boat XX delivered. XXX the XXXXXXX XXX recover the costs it incurs on the XXXX.</span> </p> <p> <span style="font-XXXX:12pt;XXXX-family:'Times XXX Roman'">Therefore, assuming that the company has delivered the boat XX XXXXXX 1, XXXX XX XXX XXXXXXXX at XXXXXX price, XXX XXXXXXXXX is XXX revenue to be XXXXXXXXXX XX per GAAP.</span> </p> <p> <span style="XXXX-size:12pt;font-family:'Times XXX XXXXX'">In the year 2012:</span> </p> <p> <span style="font-size:XXXX;XXXX-XXXXXX:'XXXXX XXX XXXXX'">Revenue XXXXXXXXXX = costs incurred = XXXXXXX design and XXXXXXX XXXXX + Building costs for X XXXXXX</span> </p> <p> <span style="font-XXXX:XXXX;XXXX-family:'Times XXX XXXXX'">= $10,000 + ($150,XXX x 3 /10)</span> </p> <p> <span style="XXXX-XXXX:XXXX;font-XXXXXX:'Times New Roman'">= $10,XXX + $45,XXX</span> </p> <p> <span style="XXXX-XXXX:12pt;font-XXXXXX:'XXXXX New XXXXX'">= $XX,XXX</span> </p> <p> <span style="font-XXXX:XXXX;XXXX-family:'Times New Roman'">XX the year 2013:</span> </p> <p> <span style="XXXX-size:XXXX;XXXX-family:'Times New XXXXX'">XXXXX XXXXXXX XX XXXXXXX - XXXXXXX XXXXXXXXXX in 2012</span> </p> <p> <span style="font-XXXX:XXXX;XXXX-XXXXXX:'Times New XXXXX'">= $XXX,XXX - $55,000 = $XXX,XXX</span> </p> <p> <span style="font-size:XXXX;font-XXXXXX:'Times XXX XXXXX'">XX XXXXX XXXX XX BMW Revenue XX $85,XXX XXXXX be XXXXXXXXXXX XXXXXXXXX for on X December 2012 XX crediting revenue XXX XXXXXXXX XXXXXXXXXXX. XXX BMW XXXXXXX will XXXXXXXXX XXXXXXX XXXXX delivering XXX vehicle on 1 XXXXXXXX XXXX.</span> </p> <p> </p> <p> <span style="font-weight:XXXX;XXXX-size:12pt;font-XXXXXX:'XXXXX New XXXXX'">Case X: Cellular XXXXXXXXX Contract</span> </p> <p> <span style="XXXX-weight:XXXX;font-XXXX:12pt;font-XXXXXX:'XXXXX XXX Roman'">How XXXXXX XTel XXXXXXX XXX XXXX transaction?</span> <a XXXX="_GoBack"> </a> </p> <p> <span style="XXXX-size:12pt;font-family:'Times New Roman'">XXXXX on an evaluation XX the XXXXXXXXXXXXX, XXX XXXXX condition for XXXXXXXXXX XX XXX XXX the XXXXX. That XX, XXX XXXXX XXX value on a standalone basis XXXXXXX it is sold separately XX XXXX. Second, XXXXX are no XXXXXXX rights XX XXXXXX in this XXXXXXXXXXX. XXX same XX true XXX XXX XXXXX service in XXXX it is sold XXXXXXXXXX XXX has no right XX return. XXXXXXXXX, the XXXXX and XXX XXXXX service XXXXXX be XXXXXXXXX for XX separate XXXXX XX accounting. XXX XXXXX XXXXXXXXXXX consideration is $1,010. XXX XXXXXXX price XX the XXXXX service is $XXX ($XX × XX months), XXX price charged by XTel when XXXX XXXXXXXXXX.</span> </p> <p> <span style="XXXX-size:XXXX;font-XXXXXX:'Times New XXXXX'">Using XXX hierarchy of XXXXXXXX XXXXXXX XXXXXX, XXXX XXXXXX use their vendor-XXXXXXXX XXXXXXXX, which XX the $XXX, XXX price XX the XXXXX when sold XXXXXXXXXX XX XXXX (not $100 XXXX the competitor charges). XXXXX XX XXXXX relative XXXXXXX XXXXXX, XXXX XXXXX allocate the arrangement consideration XX a relative XXXXXXX XXXXX basis XX XXXXXXX: $112.22 [$1,010 x ($120 ÷ [$XXX + $XXX])] XX the phone XXX $XXX.XX [$X,010 × ($XXX ÷ [$XXX +$960])] XX XXX phone XXXXXXX. XXXXXXX, because XXX total XXXXXXX XXXXXXX XXXX of $960 XXX contingent XXXX providing cell phone service, the XXXXXX XX XXXXXXXX XX the cell XXXXX ($112.22) XX XXXXXXX than the XXX-contingent XXXXXXXXXXXXX XX $50. XXXXXXXXX, XX can only XXXXXXXX $50 to XXX cell XXXXX and XXX $960 gets XXXXXXXXX XX XXX phone service.</span> </p> <p> <span style="XXXX-XXXX:12pt;XXXX-XXXXXX:'XXXXX New XXXXX'">The cell XXXXX revenue ($XX) can be recognized when the phone is XXXXXXXXX to XXX customer. XXX $960 XXXXXX be XXXXXXXXXX in equal XXXXXXX amounts XXXX XXX XXXX of XXX X-year agreement ($XX per XXXXX).</span> </p> <p> </p> </div> </body></XXXX>">
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