Circuit City Stores Essay

Revenues are recognized at the POS, when a fixed sales price is established, and collection is probable. For most product sales, these criteria are met when a product is shipped. Online sales are deferred until the customer receives their product, and the transfer of liability is completed.

This is not in compliance with the provisions of GAAP or SAB 101. Revenue should not be recognized until it is realized or becomes realizable and earned. If we followed this statement the company did not have realized revenue Furthermore, the penalty payments if enforced could not be paid till the year 2005 as stated in the contract. Also, the journal entry resulted in recognizing revenue when it was not earned or

2. What is the effect of the depreciation accounting method change on the reported income in 1984? How will this change affect profits in future years?

3. On the basis of the responses to Question 1 and 2, what are the units of accounting in this arrangement?

Case 3: Lowland Appliance Stores offers customers purchasing its appliances separately priced (extended) warranties. Lowland services these extended warranties. Its customers can receive no refunds for not using these warranties, and, of course, Lowland must honor these contracts—regardless of any future costs in doing so. It also “tracks” the profits and losses these types of warranties generate by appliance category—in order to help maintain a competitive price and costing structures. How should Lowland recognize the revenues and expenses of such extended warranties?

Answer: The revenue coming from the promise to integrate internet technologies on Windows 95 and office would be recognized in the future by the revenue recognition policy. However, the development costs to provide these enhancements are already incurred in the and expensed in the company’s treatment for the software development costs. The combined effect of these two policies is the mismatch of expense with revenue.

ASC subtopic 605-20 provides guidance in the accounting for revenues from service activities and arrangements which includes the ff: a. separately price extended warranty and maintenance contracts. b. commissions from restrospective insurance arrangements. c. fees for guaranteeing a loan d. services for freight-in-transit at the end of reporting period e. advertising barter transactions. This subtopic doesn’t include: a. guarantees accounted for as derivatives b. product warranties c. financial guarantee insurance contracts.

Based on the information outlined above, the revenue recognition accounting would follow that for Multiple-Element Arrangements as outlined in ASC 605-25. The accounting units of system and PCS will be accounting for separately, because the criteria of ASC 605-25-5-a are met: “The delivered item or items have value to the customer on a standalone basis. The item or items have value on a standalone basis if any vendor sells them separately or the customer could resell the delivered item(s) on a standalone basis. In the context of a customer's ability to resell the delivered item(s), this criterion does not require the existence of an observable market for the deliverable(s).” As outlined in the case, both the customer support system and the post-contract customer support have standalone relative selling prices of $12,000 and $2,000, and could be purchased separately. Therefore, it is appropriate to use Vendor-Specific Objective Evidence to determine the amount of revenue to recognize for the system ASC 605-25-30 and the breakout for PCS, but PCS will also be subject to nonrefundable up-front fee stipulations for revenue recognition. According to ASC 605-10-S99 SEC Materials and the SEC’s codification of Staff

The changes are geared towards increasing the effectiveness of the different processes and reducing the related cost functions of the organization. The reasons for my support include the entities’ need to recognize when its revenues are made, this then makes it possible for the entity track the whole process as each aspect of the transaction is carried out. make it possible so it will be possible for the entity to track the whole process as the organization carries out the different functions. There also exists, the need to make it possible to deduct the sales tax and other taxes from the consideration that is also the price of the good or the service. Therefore, this paper will explore a discussion of the criteria of accounting for those contracts or liabilities that do not meet the set-out criteria, how the taxes are deducted from the different customers, the making of noncash considerations, and complete contracts at

Compute the amount of gross profit to be recognized from the installment sale in 2006, 2007, 2008, 2009, and 2010 using point of delivery revenue recognition. Ignore interest charges.

By September 30, 2002, some of the equipment had been delivered and installed at the RBOC. Other equipment had been manufactured and shipped, but not yet received by the customer. Still other products are to be delivered over the following two fiscal years. All products contain a two-year warranty. Lucent has promised to maintain the products and provide software upgrades and a dedicated customer support team for a three-year period. How should Lucent recognize revenue on this contract? For the contract in part iv, how would your answer change if you learned that there was a side agreement allowing the RBOC to return the products, no questions asked, through January 31, 2003? What if Lucent promised significant discounts on future purchases in return for signing the initial $200 million contract? How could Lucent manage its reported earnings through strategic revenue recognition choices for the contract in part iv?  Analysis 

Should Vitamix recognize the revenue received from the sale immediately or at the time when the factory warranty expires?

We have constructed pro forma financial statements based on the sales-driven estimates and interest and tax fixed burdens. The key determining factors to the accuracy of these projections are the assumptions made about revenue growth and the sales-driven accounts like cost of goods sold, current assets (viz., inventory). Also, assumptions about the company’s capital budgeting

Therefore, the author made a Hypothesis: Ceteris paribus, reported revenue under early revenue recognition is more timely in providing economic information than that under SOP 91-1. An efficient stock market impounds value-relevant information of economic transactions in a quick and unbiased fashion. The author tried to find the relationship between reported revenue and stock return to prove the hypothesis by employing reverse regression methodology. After analysis of data, the author’s conclusion is that early revenue recognition increases the timeliness.

The following new standards, amendments to standards and interpretations became mandatory for the first time during the financial year beginning 1 January 2015. All were either not relevant for XYZ or had no material impact on the financial statements of the group: