Sometimes experts give the wrong answer, so I\'m just posting the right answer b
ID: 2486944 • Letter: S
Question
Sometimes experts give the wrong answer, so I'm just posting the right answer below.
3. Question : (TCO A) Blue Suede Construction Corp used the percentage-of-completion method of revenue recognition. They were contracted to build the new amphitheater for $800000. Additional information was provided:
As of Dec 31…. 2012 2013
Percentage of completion 15% 40%
Estimated total expected costs $550,000 $580,000
Gross profit recognized (Cumulative) $50,000 $99,000
Contracted costs incurred during 2013 were…
Student Answer: INCORRECT $145,000
CORRECT $149,500
Instructor Explanation: Chapter 18. Points Received: 0 of 5 Comments: Question
4. Question : (TCO A) Revenue should NOT be recognized at the time of sale if…
Student Answer: INCORRECT goods were purchased with a credit card payment
CORRECT the buyer has sixty days to return the goods and the amount of future returns cannot be estimated the selling price is substantially less than the normal selling price none of the above
Instructor Explanation: Chapter 18 Points Received: 0 of 5 Comments:
Explanation / Answer
3) The completion of job in 2013 is 40% and out of this 40% completion the 2012 completion of 15% is also included, so Contracted costs incurred during 2013 were = 580000 * 40% - 550000 * 15% = $149500
4) Revenue should not be recognised at the time of sale if the customer has the option to return the product in the future period. Revenue is recognised only when the acceptance of the product is received from the customer. Like in your case, if a product has been sold out with the "returnable basis" condition and judging the future date price and number of returns by the customer is not possible, so the Revenue is not recognised until confirmation of acceptance received from the buyer.
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