Chapter 18: Q25Q. (page 1031)
Explain a bill-and-hold sale. When is revenue recognized in these situations?
A bill-and-hold contract occurs when a buyer isn't ready to take delivery but accepts title and billing. The bill-and-hold system must have a strong basis.
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Wood-Mode Company is involved in the design, manufacture, and installation of various types of wood products for large construction projects. Wood-Mode recently completed a large contract for Stadium Inc., which consisted of building 35 different types of concession counters for a new soccer arena under construction. The terms of the contract are that upon completion of the counters, Stadium would pay \(2,000,000. Unfortunately, due to the depressed economy, the completion of the new soccer arena is now delayed. Stadium has therefore asked Wood-Mode to hold the counters for 2 months at its manufacturing plant until the arena is completed. Stadium acknowledges in writing that it ordered the counters and that they now have ownership. The time that Wood-Mode Company must hold the counters is totally dependent on when the arena is completed. Because Wood-Mode has not received additional progress payments for the counters due to the delay, Stadium has provided a deposit of \)300,000.
Instructions
(a) Explain this type of revenue recognition transaction.
(b) What factors should be considered in determining when to recognize revenue in this transaction?
(c) Prepare the journal entry(ies) that Wood-Mode should make, assuming it signed a valid sales contract to sell the counters and received at the time the $300,000 deposit.
(Determine Transaction Price) Taylor Marina has 300 available slips that rent for $800 per season. Payments must be made in full by the start of the boating season, April 1, 2018. The boating season ends October 31, and the marina has a December 31 year-end. Slips for future seasons may be reserved if paid for by December 31, 2018. Under a new policy, if payment for 2019 season slips is made by December 31, 2018, a 5% discount is allowed. If payment for 2020 season slips is made by December 31, 2018, renters get a 20% discount (this promotion hopefully will provide cash flow for major dock repairs).
On December 31, 2017, all 300 slips for the 2018 season were rented at full price. On December 31, 2018, 200 slips were reserved and paid for the 2019 boating season, and 60 slips were reserved and paid for the 2020 boating season.
Instructions
(a) Prepare the appropriate journal entries for December 31, 2017, and December 31, 2018.
(b) Assume the marina operator is unsophisticated in business. Explain the managerial significance of the above accounting to this person.
How should a franchisor account for continuing franchise fees and routine sales of equipment and supplies to franchisees?
How do companies recognize revenue from a performance obligation over time?
Turner, Inc. began work on a \(7,000,000 contract in 2017 to construct an office building. During 2017, Turner, Inc. incurred costs of \)1,700,000, billed its customers for \(1,200,000, and collected \)960,000. At December 31, 2017, the estimated additional costs to complete the project total $3,300,000. Prepare Turner’s 2017 journal entries using the percentage-of-completion method.
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