Chapter 5, Problem 5.17E

Requirement – 1

To determine

Revenue recognized point of long term contract

A long-term contract qualifies for revenue recognition over time. The seller can recognize the revenue as per percentage of the completion of the project, which is recognized by revenue minus cost of completion until date.

If a contract does not meet the performance obligation norm, then the seller cannot recognize the revenue till the project is complete.

The revenue recognition principle

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.

Contract

Contract is a written document that creates legal agreement between the parties for buying and selling the property. It is committed by the parties to perform their obligation and to enforce their rights.

To describe: The amount of revenue and gross profit or loss to be recognized in 2016 and 2017 assuming N Networks recognizes revenue over time according to percentage of completion.

Requirement – 2

To determine

To calculate: The amount of revenue and gross profit or loss to be recognized in 2016 and 2017 assuming the project does not qualify for revenue recognition over time.

Requirement – 3

To determine

To prepare: A partial balance sheet to should how the information related to the contract at the end of 2016 and assume N Networks recognizes revenue over time according to percentage of completion.

Requirement – 4

To determine

To prepare: A partial balance sheet to should how the information related to the contract at the end of 2016 and assume the project does not qualify for revenue recognition over time.