methods of revenue recognition
Simona Amanar Industries has two operating divisions-Gina Construction Division and Chorkina Securities Division. Each division maintains its own accounting system and method of revenue recognition.
Gina Construction Division
During the fiscal year ended November 30, 2008, Gina Construction Division had one construction project in process. A $30,000,000 contract for construction of a civic center was granted on June 19, 2008, and construction began on August 1, 2008. Estimated costs of completion at the contract date were $25,000,000 over a 2-year time period from the date of the contract. On November 30, 2008, construction costs of $7,800,000 had been incurred and progress billings of $9,500,000 had been made. The construction costs to complete the remainder of the project were reviewed on November 30, 2008, and were estimated to amount to only $16,200,000 because of an expected decline in raw materials costs. Revenue recognition is based upon a percentage-of-completion method.
(a) There are a variety of methods of revenue recognition. Define and describe each of the following methods of revenue recognition and indicate whether each is in accordance with generally accepted accounting principles.
(1) Point of sale.
(2) Completed-contract.
(3) Percentage-of-completion.
(4) Installment-sales.
(b) Compute the revenue to be recognized in fiscal year 2008 for the two operating divisions of Simona Amanar Industries in accordance........