Revenue Recognition

PROBLEM# 5: Revenue Recognition

Identify when each of the following companies should recognize revenue.

(i) Before production begins, (ii) cash collection, (iii) after replacement cost are recovered, (iv) point of sale, (v) completion of product, and (vi) during production.AND

Discuss any income measurement risks that could arise.

(i) Persuasive evidence of arrangement, (ii) delivery has occurred/ services have been rendered, (iii) price is fixed or determinable, (iv) collectability is assured.

a. Real Money provides investment advice to customers for an upfront fee. It provides these customers with password-protected access to its Website where customers can download investment reports. Real Money is obligated to provide updates on its website.

b. Boeing – airplane manufacturer whose revenue is derived largely from long-term fixed-price contracts with airlines

c. Wells Fargo – large commercial bank that earns interest on loans

d. Harley Davidson – manufactures and retails motorcycles, provides financing for dealers and customers