ch 8 Revenue Recognition

ch 8 Revenue Recognition - Ch8RevenueRecognition...

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8-1 Ch 8 Revenue Recognition Learning Objectives 1. Identify the primary criteria for revenue recognition. 2. Record journal entries for long-term construction-type  contracts using percentage-of-completion and completed- contract methods. 3. Record journal entries for long-term service contracts  using the proportional performance method. 4. Explain when revenue is recognized after delivery of  goods or services through installment sales, cost recovery,  and cash methods.
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8-2 Identify the primary criteria for revenue recognition. OBJECTIVE 1 Recognition  refers to the time when transactions are  recorded on the books. Revenues and gains are  generally recognized when: 1.  They are  realized or realizable . 2.  They have been  earned  through substantial completion  of the activities involved in the earnings process.
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8-3
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8-4 Revenue Recognition Revenue is not recognized prior to the point of sale  because either: A valid promise of payment has not been received from  the customer, or The company has not provided the product or service. Exceptions to these rules: The customer provides a valid promise of payment. Conditions exist that contractually guarantee the sale.
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8-5 AICPA  Statement of Position 97-2  gives companies  more guidance through a checklist of four factors that  amplify the two criteria: 1. Persuasive evidence of an arrangement exists. 2. Delivery has occurred. 3. The vendor’s fee is fixed or determinable. 4. Collectibility is probable. 1 and 2 relate to whether revenue has been earned. 3 and 4 relate to the realizability of the revenue. Revenue Recognition
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8-6 Seller Company receives $1,000 cash from a  customer as the initial sign-up fee for a service.  In addition to the sign-up fee, the customer is  required to pay $50 per month for 100 months,  which is the economic life of this service  agreement. Appropriate Accounting for a Service Provided  Over an Extended Period
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8-7 Receipt of $1,000 cash as initial sign-up fee: Cash 1,000 Unearned Initial Sign-Up Fees 1,000 Receipt of first monthly payment of $50: Cash 50 Monthly Service Revenue 50 Partial recognition of the initial signup fee as revenue  ($1,000/100 months): Unearned Initial Sign-Up Fees 10 Initial Sign-Up Fee Revenue 10 Appropriate Accounting for a Service Provided  Over an Extended Period
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8-8 Appropriate Accounting for a  Refundable Membership Seller Company receives $1,200 cash from each customer as  a fully refundable, one-year membership fee.  It is estimated that the cost to Seller Company to provide the  membership service to each customer will be $360 for one  year.  Seller Company can reliably estimate that 40% of the  customers will request refunds during the year.  Assume all refunds occur at the end of the year. There were  1,000 customers.
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ch 8 Revenue Recognition - Ch8RevenueRecognition...

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