Question

Westinghouse Electric Corporation

The following note appears in the “Summary of Significant Accounting Policies” section of the Annual Report of Westinghouse Electric Corporation.

Note 1 (in part): Revenue Recognition. Sales are primarily recorded as products are shipped and services are rendered. The percentage of completion method of accounting is used for nuclear steam supply system orders with delivery schedules generally in excess of five years and for certain construction projects where this method of accounting is consistent with industry practice.

WFSI revenues are generally recognized on the accrual method. When accounts become delinquent for more than two payment periods, usually 60 days, income is recognized only as payments are received. Such delinquent accounts for which no payments are received in the current month, and other accounts on which income is not being recognized because the receipt of either principal or interest is questionable, are classified as nonearning receivables.

Instructions

(a) Identify the revenue recognition methods used by Westinghouse Electric as discussed in its note on significant accounting policies.

Short answer

The company is using two methods for recognizing revenue:

1. Complete contract Method.
2. Percentage of Completion Method.

Step-by-step solution

Definition of Accounting Policies

The procedures adopted by the business entities to prepare the financial statement are known as accounting policies.

Revenue recognition method used

1. Complete contract method: The business entity uses the complete contract method when the product and services are rendered.
2. Percentage of completion method: The business entity uses the percentage of completion method for the nuclear steam supply system because the delivery of such service usually exceeds five years.