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Unformatted text preview: Lecture XIII-HW Solutions 6-35 (10 min.) 1. If there is a significant chance that payment on the contract will not be received, the realization test has not been met. Recognition of revenue should be delayed until there is a high probability of receiving the payment. This may mean recognizing all $11 million of revenue at completion of the contract, and recognizing all of the expenses on the contract at the same time. It is reasonable to ask whether the contract should be accepted in this instance. It is reasonable to suggest that the contract be altered to require progress payments as milestones are reached. 2. Revenue should be recognized as it is earned : 20X0 3/10 x $11 million = $3.3 million 20X1 3/10 x $11 million = $3.3 million 20X2 4/10 x $11 million = $4.4 million $11.0 6-45 (16-20 min.) 1. The allowance method is preferable because the revenue earned in 20X8 is really $784,000 on the accrual basis, not $800,000. The .02 x $800,000 = $16,000 of expected bad debts should be matched to 20X8 revenue.debts should be matched to 20X8 revenue....
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- Spring '08
- Revenue, Expense, Generally Accepted Accounting Principles, Uncollectible Accounts, allowance