Chapter 18 HW - P18-1 ( a ) 1. The point of sale method...

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( a ) 1. 2. 3. 4. ( b ) Depp Construction Contract price ……………………………………………………………. $3 Costs: Actual costs to 11/30/10 …………………………………………. $ Estimated costs to complete ……………………………………………… $1 The point of sale method recognizes revenue when the earnings course of action is complete and has taken place. This can be the date goods are delivered, when title passes, when services are pr or as time passes (e.g., rent or royalty income). This method most strictly follows the accrual acc in harmony with generally accepted accounting principles (GAAP). The completion-of-production method distinguishes revenue only when the project is complete a completed. This is used principally with short-term contracts or with long-term contracts when th difficulty in guesstimating the costs outstanding to complete a project. The benefit of this metho recognized on final results, not approximates. The drawback is that when the contract lengthens accounting period, existing performance on the project is not acknowledged and earnings are fuz according to GAAP only in the extraordinary situations when forecasting the amount of work co possible. The percentage-of-completion method of revenue recognition is used on long-term projects, typi be germane, the following circumstances must exist: (i) A firm contract price with a high probability of collection. (ii) A reasonably accurate estimate of costs (and, therefore, of gross profit). (iii) A way to reasonably estimate the extent of progress to completion of the project. Gross profit is recognized in percentage to the work completed. The advancement toward contra revenue-generating event. In general, advancement is calculated as the percentage of actual costs total costs. This percentage is applied to predictable gross profit to point out the total profit whic acknowledged to that date. That total less the income that was documented in preceding periods recognized in the current period. In the final period, the actual total profit is identified and the va amount and profit formerly recognized is shown as profit of the period. This method is in agreem accepted accounting principles for long-term projects when estimates are dependable. The installment-sales method might be pertinent when the sales price is received over an extende installment-sales method distinguishes proceeds as the cash is collected and is used when the col price is not convincingly guaranteed. This method is frequently used for tax purposes, but it is no GAAP, except in certain circumstances, because it contravenes accrual basis accounting. The ins can be used in extraordinary circumstances when collectability is very uncertain. A change of cost estimates calls for a revision of revenue and profit to be recognized in the perio
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Chapter 18 HW - P18-1 ( a ) 1. The point of sale method...

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