Revised Solution - Issue: Computer Division Revenue...

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Issue: Computer Division – Revenue Recognition Option 1: Do not recognize the new computer contract as revenue Dwight cannot recognize revenue from the new computers because some of the revenue recognition criteria will be violated. Also the rewards has not been transferred despite the customers are using the new computers because the customers are not using the computer with their specification and what they have been ordered. Therefore, according to GAAP it would be too aggressive to recognize as revenue. DI Inc will have to reverse the current entry as result revenue will decrease and net income as well will be negatively impacted. The existing inventory [computer with the old technology will be considered as a consignment inventory. The computer with old technology must be recorded as part of ending inventory in Dwight income statement. It may require to written down since there is a new technology on the market. Option 2: recognize part as revenue The company may recognize part of the revenue from the contact by the percentage completion method.
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The company can reasonably underestimate for doubtful accounts. At best, perhaps the company can used the percentage of completion method and recognized a percentage of revenue since the earning process might be seen continuous with one or more significant event like the interim product [computer with old technology] and final products. Under this model there is a risk that percentage of completion ratio can be under-estimated and thus sale can be overestimates. Recommendation: It would be safer not to recognize the revenue for the fear of it being viewed as too overly aggressive. Inventory need to be written down and disclosed management commitment to the contract. Issue: Satellite Division – Treatment of Assets Option 1: Abandon assets Even if the asset is repaired it will not meet the current standard and it appears the company must classify it as abandoned assets. GAAP will need to consolidate the satellite division assets and liability together in the fiscal year 2010 because the disposition has not been occurred. Moreover, one of the satellites has been damage; the company will require recording an impairment loss.
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The company must also record the cost associated with subcontracting the satellites as an expenses. The company will have to maintain the asset retirement obligation as liability on the balance sheets. It also required requiring to be amortized over the useful life of the assets. Option 2: Treat asset held for sale GAAP will also allowed it to be classified as held for sale for the following reasons; first there is an authorized plan to sell the assets, the asset is available for sale in its current state, the company has many major competitors who are seriously interested in buying the assets.
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Revised Solution - Issue: Computer Division Revenue...

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