Module 5 - Module 5 Module 5 Reporting and Reporting and...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Module 5 Module 5 Reporting and Reporting and Analyzing Operating Analyzing Operating Income Income Operating and Nonoperating Operating and Nonoperating Components in the Income Statement Components in the Income Statement Pfizer’s Income Statement Pfizer’s Income Statement Revenue Recognition Revenue Recognition Revenue recognition criteria Revenue recognition criteria 1. 1. realized or realizable realized or realizable , and 2. 2. earned earned Realized or realizable Realized or realizable means that the seller’s net assets (assets less liabilities) increase. Earned Earned means that the seller has performed its duties under the terms of the sales agreement. Arguments Arguments Against Against Revenue Recognition Revenue Recognition Rights of return exist Rights of return exist Consignment sales Consignment sales Continuing involvement by seller in product Continuing involvement by seller in product resale resale Contingency sales Contingency sales Pfizer’s Revenue Recognition Policy Pfizer’s Revenue Recognition Policy Pfizer recognizes its revenues as follows: Risks of Revenue Recognition Risks of Revenue Recognition Case 1: Channel stuffing Case 1: Channel stuffing Case 2: Barter transactions Case 2: Barter transactions Case 3: Mischaracterizing transactions as Case 3: Mischaracterizing transactions as arm’s-length arm’s-length Case 4: Pending execution of sales agreements Case 4: Pending execution of sales agreements Case 5: Gross versus net revenues Case 5: Gross versus net revenues Case 6: Sales on consignment Case 6: Sales on consignment Case 7: Failure to take delivery Case 7: Failure to take delivery Case 8: Nonrefundable fees Case 8: Nonrefundable fees Percentage-of-Completion Percentage-of-Completion The percentage-of-completion recognizes revenue by The percentage-of-completion recognizes revenue by the proportion of costs incurred to date compared the proportion of costs incurred to date compared with total estimated costs. with total estimated costs. Assume that Bayer Construction signs a $10 million contract to construct a building. Abbott estimates construction will take two years and will cost $7,500,000. This means the contract yields an expected gross profit of $2,500,000 over two years. The following table summarizes construction costs incurred each year and the revenue Bayer recognizes. Percentage-of-Completion Percentage-of-Completion Revenue recognition policies for these types of contracts are disclosed in a manner typical to the following from the 2007 10-K report footnotes of Raytheon Company : “We generally use the cost-to-cost measure of progress for all of our long-term...
View Full Document

This note was uploaded on 11/08/2010 for the course ACC 5056 taught by Professor J.goslinga during the Spring '10 term at University of Florida.

Page1 / 39

Module 5 - Module 5 Module 5 Reporting and Reporting and...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online