Problem 1. The principal DISADVANTAGE of using the percentage-of-completion method of recognizing revenue from long-term contracts is that it:
- is unacceptable for income tax purposes.
- gives results based upon estimates which may be subject to considerable uncertainty.
- is likely to assign a small amount of revenue to a period during which much revenue was actually earned.
- None of these.
Problem 2. Revenue recognition
The earning of revenue by a business is recognized for accounting purposes when the transaction is recorded. Revenue is often recognized at time of sale.
Instructions:
At what times, other than at time of sale, may it be appropriate to recognize revenue? Explain and justify each of these times.