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. 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. 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 which is applicable to sales. 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, this method can be used. The amount of cash collected on installment sales in the year 2018.

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Answer 1

Question

Chapter 5, Problem 5.27E

Requirement – 1

To determine

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.

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. 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 which is applicable to sales.

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, this method can be used.

The amount of cash collected on installment sales in the year 2018.

Requirement – 2

To determine

The amount of gross profit would be recognized in the installment sales method.

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Students have asked these similar questions

Question: On April 1, 2024, Oakland Corporation realizes that one of its main suppliers is having difficulty meeting delivery schedules, which is hurting Oakland's business. The supplier explains that it has a temporary lack of funds that is slowing its production cycle. Oakland agrees to lend $540,000 to its supplier using a 12-month, 11% note. Required: Record the following transactions for Oakland Corporation: 1. The loan of $540,000 and acceptance of the note receivable on April 1, 2024. 2. The adjusting entry for accrued interest on December 31, 2024. 3. Cash collection of the note and interest on April 1, 2025.

Problem 6: Carmen Corporation uses the installment sales method. On January 1, 2020, The corporation sold an equipment for P2,000,000 with the following terms: 30% down payment on the date of sale and the balance is payable in four equal annual installments every December 31. The cost of the equipment is P1,200,000. Ignore the concept of time value of money. Requirement: Provide the journal entries for 2020 and 2021. Show all computations in good form.

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Answer 2

Question

Chapter 5, Problem 5.27E

Requirement – 1

To determine

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.

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. 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 which is applicable to sales.

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, this method can be used.

The amount of cash collected on installment sales in the year 2018.

Requirement – 2

To determine

The amount of gross profit would be recognized in the installment sales method.

Expert Solution & Answer

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See solution

Answer 3

Question

Chapter 5, Problem 5.27E

Requirement – 1

To determine

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.

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. 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 which is applicable to sales.

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, this method can be used.

The amount of cash collected on installment sales in the year 2018.

Requirement – 2

To determine

The amount of gross profit would be recognized in the installment sales method.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 4

Question

Chapter 5, Problem 5.27E

Requirement – 1

To determine

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.

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. 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 which is applicable to sales.

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, this method can be used.

The amount of cash collected on installment sales in the year 2018.

Requirement – 2

To determine

The amount of gross profit would be recognized in the installment sales method.

Expert Solution & Answer

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Answer 5

Chapter 5, Problem 5.27E

Requirement – 1

To determine

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.

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. 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 which is applicable to sales.

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, this method can be used.

The amount of cash collected on installment sales in the year 2018.

Requirement – 2

To determine

The amount of gross profit would be recognized in the installment sales method.

Answer 6

Chapter 5, Problem 5.27E

Requirement – 1

To determine

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.

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. 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 which is applicable to sales.

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, this method can be used.

The amount of cash collected on installment sales in the year 2018.

Answer 7

Chapter 5, Problem 5.27E

Requirement – 1

To determine

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.

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. 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 which is applicable to sales.

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, this method can be used.

The amount of cash collected on installment sales in the year 2018.

Answer 8

Requirement – 2

To determine

The amount of gross profit would be recognized in the installment sales method.

Answer 9

Requirement – 2

To determine

The amount of gross profit would be recognized in the installment sales method.

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 revenue recognition principle and the cost recovery method.

The amount of gross profit would be recognized in the installment sales method.

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