AMA201_Questions_Chapter_18 - Jesica Islas Intermediate...

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Jesica Islas Intermediate Accounting 1 February 12, 2007 Professor A. Wu Chapter 18 Questions on Chapter 18 1. A series of highly publicized cases of companies recognizing revenue prematurely has caused the SEC to increase its enforcement actions in this area. In some of these cases, significant adjustments to previously issued financial statements were made. Some of these cases involved contingent sales where side agreements were in place or high rates of return occurred. In addition, in some cases, unfinished product was shipped to customers and counted as revenues or unauthorized product was shipped to customers and counted as revenues. 2. Revenue is conventionally recognized at the date of sale. For revenue to be recognized at the date of sale, (1) the amount of the revenue should be reasonably measurable—that is, the collectibility of the sales price is reasonably assured or the amount uncollectible can be estimated reasonably (realized or realizable)—and (2) the earnings process is complete or virtually complete—that is, the seller is not obligated to perform significant activities after the sale to earn the revenue. 3. Revenues are recognized generally as follows: (a) Revenue from selling products—date of delivery to customers. (b) Revenue from services rendered—when the services have been performed and are billable. (c) Revenue from permitting others to use enterprise assets—as time passes or as the assets are used. (d) Revenue from disposing of assets other than products—at the date of sale. 4. Types of sales transactions: (1) Cash sale. (2) Credit sale. (3) C.O.D. sale. (4) Will- call or layaway sale. (5) Sale in advance of delivery (long-term construction). (6) Branch sale. (7) Intercompany sale. (8) Franchise sale. (9) Installment sale. The student should identify for each type of sale a form of business which typically
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This note was uploaded on 11/30/2011 for the course ACCOUNTING 323 taught by Professor None during the Spring '10 term at Prince George's Community College, Largo.

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AMA201_Questions_Chapter_18 - Jesica Islas Intermediate...

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