Conceptual 1 companies should recognize revenue when

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Intermediate Accounting: Reporting and Analysis
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Chapter 4 / Exercise M4-1
Intermediate Accounting: Reporting and Analysis
Jones/Wahlen
Expert Verified
—Conceptual 1. Companies should recognize revenue when it is realized and when cash is received. 2. Revenues are realized when a company exchanges goods and services for cash or claims to cash. 3. Delayed recognition of revenue is appropriate if the sale does not represent substantial completion of the earnings process. 4. If a company sells its product but gives the buyer the right to return it, the company should not recognize revenue until the sale is collected. 5. Companies can recognize revenue prior to completion and delivery of the product under certain circumstances. 6. Companies must use the percentage-of-completion method when estimates of progress toward completion are reasonably dependable. 7. The most popular input measure used to determine the progress toward completion is the cost-to-cost basis. 8. If the difference between the Construction in Process and the Billings on Construction in Process account balances is a debit, the difference is reported as a current asset. 9. The Construction in Process account includes only construction costs under the percentage-of-completion method. 10. Under the completed-contract method, companies recognize revenue and costs only when the contract is completed. 11. The principal advantage of the completed-contract method is that reported revenue reflects final results rather than estimates. 12. Companies must recognize a loss on an unprofitable contract under the percentage-of-completion method but not the completed-contract method. 13. A loss in the current period on a profitable contract must be recognized under both the percentage-of-completion and completed-contract method. 14. Under the completion-of-production basis, companies recognize revenue when agricul-tural crops are harvested since the sales price is reasonably assured and no significant costs are involved in product distribution. 15. The provision for a loss on an unprofitable contract may be combined with the Construction in Process account balance under percentage-of-completion but not completed-contract. 16. Under the installment-sales method, companies defer revenue and income recognition until the period of cash collection. To download more slides, ebook, solutions and test bank, visit
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Intermediate Accounting: Reporting and Analysis
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Chapter 4 / Exercise M4-1
Intermediate Accounting: Reporting and Analysis
Jones/Wahlen
Expert Verified
Revenue Recognition 18 - 717. The installment-sales method defers only the gross profit instead of both the sales price and cost of goods sold. 18. Deferred gross profit is generally treated as an unearned revenue and classified as a current liability. 19. Under the cost-recovery method, a company recognizes no revenue or profit until cash payments by the buyer exceed the cost of the merchandise sold. 20. Companies recognize profit under the cost-recovery method only when cash collections exceed the total cost of the goods sold.

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