Methods of Revenue Recognition There are three methods or principles to recognize the revenue and costs for a business entity, they are: 1. The Realization principle or Point of delivery method 2. The Installment sales method 3. The cost recovery method Installment sales method: Under the installment sales, the revenue and costs are recognized only when the payment of cash is received from customer. Two composed components are involved in the each payment of cash, and components of sales are as follows: Partial recovery of the cost from sales Component of gross profit These components are determined by the percentage of gross profit. Cost recovery method: Under the cost recovery method, gross profit is recognized when the cost of the sales is recovered. Where there is an extremely high degree of uncertainty in the installment sales, then this method can be used. To calculate: The amount of gross profit that would be recognized in 2018 using each method.

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Answer 1

Question

Chapter 5, Problem 5.14BYP

Requirement – 1

To determine

Methods of Revenue Recognition

There are three methods or principles to recognize the revenue and costs for a business entity, they are:

1. The Realization principle or Point of delivery method

2. The Installment sales method

3. The cost recovery method

Installment sales method:

Under the installment sales, the revenue and costs are recognized only when the payment of cash is received from customer. Two composed components are involved in the each payment of cash, and components of sales are as follows:

Partial recovery of the cost from sales

Component of gross profit

These components are determined by the percentage of gross profit.

Cost recovery method:

Under the cost recovery method, gross profit is recognized when the cost of the sales is recovered. Where there is an extremely high degree of uncertainty in the installment sales, then this method can be used.

To calculate: The amount of gross profit that would be recognized in 2018 using each method.

Requirement – 2

To determine

To discuss: The circumstances under which each of the three methods would be used.

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Answer 2

Question

Chapter 5, Problem 5.14BYP

Requirement – 1

To determine

Methods of Revenue Recognition

There are three methods or principles to recognize the revenue and costs for a business entity, they are:

1. The Realization principle or Point of delivery method

2. The Installment sales method

3. The cost recovery method

Installment sales method:

Under the installment sales, the revenue and costs are recognized only when the payment of cash is received from customer. Two composed components are involved in the each payment of cash, and components of sales are as follows:

Partial recovery of the cost from sales

Component of gross profit

These components are determined by the percentage of gross profit.

Cost recovery method:

Under the cost recovery method, gross profit is recognized when the cost of the sales is recovered. Where there is an extremely high degree of uncertainty in the installment sales, then this method can be used.

To calculate: The amount of gross profit that would be recognized in 2018 using each method.

Requirement – 2

To determine

To discuss: The circumstances under which each of the three methods would be used.

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Answer 3

Question

Chapter 5, Problem 5.14BYP

Requirement – 1

To determine

Methods of Revenue Recognition

There are three methods or principles to recognize the revenue and costs for a business entity, they are:

1. The Realization principle or Point of delivery method

2. The Installment sales method

3. The cost recovery method

Installment sales method:

Under the installment sales, the revenue and costs are recognized only when the payment of cash is received from customer. Two composed components are involved in the each payment of cash, and components of sales are as follows:

Partial recovery of the cost from sales

Component of gross profit

These components are determined by the percentage of gross profit.

Cost recovery method:

Under the cost recovery method, gross profit is recognized when the cost of the sales is recovered. Where there is an extremely high degree of uncertainty in the installment sales, then this method can be used.

To calculate: The amount of gross profit that would be recognized in 2018 using each method.

Requirement – 2

To determine

To discuss: The circumstances under which each of the three methods would be used.

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Answer 4

Question

Chapter 5, Problem 5.14BYP

Requirement – 1

To determine

Methods of Revenue Recognition

There are three methods or principles to recognize the revenue and costs for a business entity, they are:

1. The Realization principle or Point of delivery method

2. The Installment sales method

3. The cost recovery method

Installment sales method:

Under the installment sales, the revenue and costs are recognized only when the payment of cash is received from customer. Two composed components are involved in the each payment of cash, and components of sales are as follows:

Partial recovery of the cost from sales

Component of gross profit

These components are determined by the percentage of gross profit.

Cost recovery method:

Under the cost recovery method, gross profit is recognized when the cost of the sales is recovered. Where there is an extremely high degree of uncertainty in the installment sales, then this method can be used.

To calculate: The amount of gross profit that would be recognized in 2018 using each method.

Requirement – 2

To determine

To discuss: The circumstances under which each of the three methods would be used.

Expert Solution & Answer

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Answer 5

Chapter 5, Problem 5.14BYP

Requirement – 1

To determine

Methods of Revenue Recognition

There are three methods or principles to recognize the revenue and costs for a business entity, they are:

1. The Realization principle or Point of delivery method

2. The Installment sales method

3. The cost recovery method

Installment sales method:

Under the installment sales, the revenue and costs are recognized only when the payment of cash is received from customer. Two composed components are involved in the each payment of cash, and components of sales are as follows:

Partial recovery of the cost from sales

Component of gross profit

These components are determined by the percentage of gross profit.

Cost recovery method:

Under the cost recovery method, gross profit is recognized when the cost of the sales is recovered. Where there is an extremely high degree of uncertainty in the installment sales, then this method can be used.

To calculate: The amount of gross profit that would be recognized in 2018 using each method.

Requirement – 2

To determine

To discuss: The circumstances under which each of the three methods would be used.

Answer 6

Chapter 5, Problem 5.14BYP

Requirement – 1

To determine

Methods of Revenue Recognition

There are three methods or principles to recognize the revenue and costs for a business entity, they are:

1. The Realization principle or Point of delivery method

2. The Installment sales method

3. The cost recovery method

Installment sales method:

Under the installment sales, the revenue and costs are recognized only when the payment of cash is received from customer. Two composed components are involved in the each payment of cash, and components of sales are as follows:

Partial recovery of the cost from sales

Component of gross profit

These components are determined by the percentage of gross profit.

Cost recovery method:

Under the cost recovery method, gross profit is recognized when the cost of the sales is recovered. Where there is an extremely high degree of uncertainty in the installment sales, then this method can be used.

To calculate: The amount of gross profit that would be recognized in 2018 using each method.

Answer 7

Chapter 5, Problem 5.14BYP

Requirement – 1

To determine

Methods of Revenue Recognition

There are three methods or principles to recognize the revenue and costs for a business entity, they are:

1. The Realization principle or Point of delivery method

2. The Installment sales method

3. The cost recovery method

Installment sales method:

Under the installment sales, the revenue and costs are recognized only when the payment of cash is received from customer. Two composed components are involved in the each payment of cash, and components of sales are as follows:

Partial recovery of the cost from sales

Component of gross profit

These components are determined by the percentage of gross profit.

Cost recovery method:

Under the cost recovery method, gross profit is recognized when the cost of the sales is recovered. Where there is an extremely high degree of uncertainty in the installment sales, then this method can be used.

To calculate: The amount of gross profit that would be recognized in 2018 using each method.

Answer 8

Requirement – 2

To determine

To discuss: The circumstances under which each of the three methods would be used.

Answer 9

Requirement – 2

To determine

To discuss: The circumstances under which each of the three methods would be used.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 5 - What are the five key steps a company follows to...Ch. 5 - What indicators suggest that a performance...Ch. 5 - What criteria determine whether a company can...Ch. 5 - We recognize service revenue either at one point...Ch. 5 - What characteristics make a good or service a...Ch. 5 - Prob. 5.6Q Ch. 5 - What must a contract include for the contract to...Ch. 5 - How might the definition of probable affect...Ch. 5 - When a contract includes an option to buy...Ch. 5 - Prob. 5.10Q

Solution Summary: The author explains the three methods of revenue and cost recognition: the Realization principle, the Installment sales method, and the cost recovery method.

To discuss: The circumstances under which each of the three methods would be used.

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