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Revenue recognition

1. The principal DISADVANTAGE of using the percentage-of-completion method of recognizing revenue from long-term contracts is that it (Points: 7)
is unacceptable for income tax purposes.
gives results based upon estimates which may be subject to considerable uncertainty.
is likely to assign a small amount of revenue to a period during which much revenue was actually earned.
None of these.

2. (TCO A) Revenue recognition
The earning of revenue by a business is recognized for accounting purposes when the transaction is recorded. Revenue is often recognized at time of sale.

Instructions

At what times, other than at time of sale, may it be appropriate to recognize revenue? Explain and justify each of these times.

Solution Preview

1. gives results based upon estimates which may be subject to considerable uncertainty.

The percentage of completion method records revenue before the project is completed and so there is a lot of uncertainty on the costs of the project and the completion of the project

2. Revenue is to be recognized when it is earned, implying that substantial obligation in providing ...

Solution Summary

The solution explains revenue recognition

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