Transaction - Revenue Recognition: Percentage Of Completion

Question 1

Percentage of Completion Method

Answer 1

Recognition of revenue throughout the lifespan of a project.

Question 2

Percentage of Completion Requirements

Answer 2

Costs, revenue, and completion progress estimable.

Buyer expected to fulfill financial obligations per contractual agreements

Contractor expected to fulfill performance obligations per contractual agreements.

Enforceable rights clarified within the contractual agreement.

Question 3

Percentage of Completion Method Calculation

Answer 3

Costs Incurred / Estimated Total Costs = Percentage Completion

Contract Price (Revenue) - Estimated Total Costs = CY Gross Profit

CY Gross Profit X Percentage Completion = CY Gross Profit Completion

CY Gross Profit Completion - PY Gross Profit Completion = Construction In Progress

Question 4

Percentage of Completion Journal Entires (Revenue/Expense)

Answer 4

Debit Construction Expense = Cost Incurred (- Combined Construction Expense from previous years if applicable)

Debit Construction In Progress = Step 3

Credit Construction Revenue = Contract Price (Revenue) X Percentage Completion (- combined recognized revenue from previous year)

Question 5

Percentage of Completion Journal Entries (Cost Incurred)

Answer 5

Debit Construction In Progress = Costs Incurred (- combined costs incurred from prior years)

Credit Cash/Payable = Costs Incurred (-combined costs incurred from prior years)

Question 6

Percentage of Completion Journal Entries (Cash Collected)

Answer 6

Debit Cash = Cash Received To Date

Credit Contracts Receivable = Cash Received To Date

Question 7

Percentage of Completion Journal Entries (Billings)

Answer 7

Debit Contracts Receivable = Billed to date

Credit Progress Billing = Billed to date

Question 8

Point In time

Answer 8

Contract Completion Method

Question 9

Over Time

Answer 9

Percentage of Completion Method

Question 10

Point In Time Revenue Recognition Criteria

Answer 10

Customer must accept assets with full ownership of title, risks, and rewards, and fully paid/entity collection rights.

Question 11

Bill and Holding Criteria

Answer 11

Must be identified as customer’s belongings which cannot be used by the entity or transfered to another customer, ready for physical transport to customer, and a substantive reasoning for the arrangement.

Question 12

Revenue Recognition Approach (step wise)

Answer 12

Contract(s), performance obilgations, and transaction price must be identified, along with the allocation to transaction price and performance obligation, and revenue can be recognized as the entity satifies the performance obligation.