Chapter 18: Question 12Q (page 1031)
What is the transaction price? What additional factors related to the transaction price must be considered in determining the transaction price?
It is the amount that a company receives for the exchange of products or services.
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(Recognition of Profit on Long-Term Contracts) During 2017, Nilsen Company started a construction job with a contract price of \(1,600,000. The job was completed in 2019. The following information is available.
2017 2018 2019
Costs incurred to date \)400,000 \(825,000 \)1,070,000
Estimated costs to complete 600,000 275,000 –0–
Billings to date 300,000 900,000 1,600,000
Collections to date 270,000 810,000 1,425,000
Instructions
(a) Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.
Engelhart Implements Inc. sells tractors to area farmers. The price for each tractor includes a GPS positioning service for nine months (which facilitates field settings for planting and harvesting equipment). The GPS service is regularly sold on a standalone basis by Engelhart for a monthly fee. After nine months, the consumer can renew the service on a fee basis. Does Engelhart have one or multiple performance obligations? Explain.
On May 3, 2017, Eisler Company consigned 80 freezers, costing \(500 each, to Remmers Company. The cost of shipping the freezers amounted to \)840 and was paid by Eisler Company. On December 30, 2017, a report was received from the consignee, indicating that 40 freezers had been sold for \(750 each. Remittance was made by the consignee for the amount due after deducting a commission of 6%, advertising of \)200, and total installation costs of $320 on the freezers sold.
Instructions
(a) Compute the inventory value of the units unsold in the hands of the consignee.
(b) Compute the profit for the consignor for the units sold.
(c) Compute the amount of cash that will be remitted by the consignee.
Describe the revenue recognition principle.
Under what conditions does a company recognize revenue over a period of time?
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