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) is completed by the company. 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. Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions: Debit , all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities. Credit , all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses. To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment.

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Answer 1

Question

Chapter 5, Problem 5.29E

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) is completed by the company.

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.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.

Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment.

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

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On April 1, 2018, the Apex Corporation sold a parcel of underdeveloped land to the Applegate ConstructionCompany for $2,400,000. The book value of the land on Apex’s books was $480,000. Terms of the sale required adown payment of $120,000 and 19 annual payments of $120,000 plus interest at an appropriate interest rate due oneach April 1 beginning in 2019. Apex has no significant obligations to perform services after the sale.Required:1. Prepare the necessary entries for Apex to record the sale, receipt of the down payment, and receipt of the firstinstallment assuming that Apex is able to make a reliable estimate of possible uncollectible amounts (that is,profit is recognized upon delivery). Ignore interest charges.2. Repeat requirement 1 assuming that Apex cannot make a reliable estimate of possible uncollectible amountsand decides to use the installment sales method for profit recognition

Subject: acounting

On July 1, 2018, Apache Company sold a parcel of undeveloped land to a construction company for $3,000,000.The book value of the land on Apache’s books was $1,200,000. Terms of the sale required a down payment of$150,000 and 19 annual payments of $150,000 plus interest at an appropriate interest rate due on each July 1beginning in 2019. Apache has no significant obligations to perform services after the sale. How much grossprofit will Apache recognize in both 2018 and 2019 applying the installment sales method?

Answer 2

Question

Chapter 5, Problem 5.29E

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) is completed by the company.

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.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.

Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment.

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

Expert Solution & Answer

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Answer 3

Question

Chapter 5, Problem 5.29E

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) is completed by the company.

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.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.

Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment.

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 5, Problem 5.29E

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) is completed by the company.

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.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.

Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment.

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

Expert Solution & Answer

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Answer 5

Chapter 5, Problem 5.29E

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) is completed by the company.

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.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.

Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment.

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

Answer 6

Chapter 5, Problem 5.29E

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) is completed by the company.

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.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.

Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment.

Answer 7

Chapter 5, Problem 5.29E

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) is completed by the company.

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.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.

Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment.

Answer 8

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

Answer 9

Requirement – 2

To determine

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under 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, which refers to revenue that should be recognized when the performance obligation (sales or services) is completed by the company.

Concept explainers

To prepare: The necessary journal entries of Company A to record the sale, receipt of the down payment, and receipt of the first installment. (Assume profit recognized under installment sales method)

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Chapter 5 Solutions