Are met 1 there is persuasive evidence that a sales

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are met: (1) there is persuasive evidence that a sales agreement exists; (2) delivery has occurred or services have bees rendered; (3) the seller's price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured.
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Module 5 I Revenue Recognition and Operating Income 5-6 Ratios Across Industries ." e, industries evolve and reach equilibrium levels for operating activities. For example, some ies require a high level of selling, general and administrative (SG&A) expenses, perhaps due advertising demands or high occupancy costs. Other industries require intense research cevelopment (R&D) expenditures to remain competitive. To a large extent, these cost structures - - e the prices that firms in the industry charge-each industry prices its product or service to a sufficient level of gross profit (sales less cost of sales) to cover the operating expenses and e industry to remain viable. Review the following table of selected operating margins for -r--.::mies in various industries (NOPM is net operating profit margin as defined in Module 3). Gross profit/Sales SG&AlSales R&D/Sales NOPM Systems, Inc. (CSCO) ...•... " . Corporation (INTC) . Inc. (PFE) . t Corp. (TGT) " . Buy Co. Inc. (BBY) ' .. '.' . iIIar Inc. (CAT) , . c. (DELL) . Home Depot, Inc. (HD) .... ...... , . Inc. (NKE) . cake Factory Inc. (CAKE) . 64.0% 65.3% 76.0% 32.1% 25.1% 28.7% 18.5% 34.3% 45.6% 42.8% 26.8% 14.5% 28.9% 20.0% 20.5% 10.0% 11.9% 23.3% 32.1% 5.8% 13.2% 15.1% 13.9% 0.0% 0.0% 4.5% 1.1% 0.0% 0.0% 0.0% 19.0% 25.8% 12.2% 5.0% 2.8% 6.8% 4.4% 5.4% 10.0% 5.6% see that Cisco, Intel and Pfizer report high gross profit margins. This does not necessarily sug- they are better managed than Dell. Instead, their industries require higher levels of gross profit ver their high levels of SG&A and R&D. Dell, on the other hand, is in a highly price-competitive ent of the computer industry. To maintain its competitive advantage, Dell must control costs. !:eeCl, Dell reports among the lowest SG&A-to-sales ratio of the companies listed. ao right of return or other contingencies. As long as Pfizer has delivered the drugs ordered ustomers, and its customers are obligated to make payment, Pfizer can recognize revenue. - llowing conditions would each argue against revenue recognition: iehts of return exist, other than due to routine product defects covered under product "arranty. Consignment sales, where products are held on consignment until ultimately sold by the consignee. Continuing involvement by seller inproduct resale, such as where the seller has an obligation forfuture performance like product updates. Contingency sales, such as when product sales are contingent on product performance or further approvals by the customer. enue is not recognized in these cases until the factors inhibiting revenue recognition are ·ed. Companies are required to report their revenue recognition policies in footnotes to their lO-K . Pfizer recognizes its revenues as follows: evenue Recognition-We record revenue from product sales when the goods are shipped and .. e passes to the customer. At the time of sale, we also record estimates for a variety of sales deductions, such as sales rebates, discounts and incentives, and product returns.
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