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Chapter 18: Q1FSAC_1 (page 1049)

Westinghouse Electric Corporation

The following note appears in the 鈥淪ummary of Significant Accounting Policies鈥� section of the Annual Report of Westinghouse Electric Corporation.

Note 1 (in part): Revenue Recognition. Sales are primarily recorded as products are shipped and services are rendered. The percentage of completion method of accounting is used for nuclear steam supply system orders with delivery schedules generally in excess of five years and for certain construction projects where this method of accounting is consistent with industry practice.

WFSI revenues are generally recognized on the accrual method. When accounts become delinquent for more than two payment periods, usually 60 days, income is recognized only as payments are received. Such delinquent accounts for which no payments are received in the current month, and other accounts on which income is not being recognized because the receipt of either principal or interest is questionable, are classified as nonearning receivables.

Instructions

(a) Identify the revenue recognition methods used by Westinghouse Electric as discussed in its note on significant accounting policies.

Short Answer

Expert verified

The company is using two methods for recognizing revenue:

  1. Complete contract Method.
  2. Percentage of Completion Method.

Step by step solution

01

Definition of Accounting Policies

The procedures adopted by the business entities to prepare the financial statement are known as accounting policies.

02

Revenue recognition method used

  1. Complete contract method: The business entity uses the complete contract method when the product and services are rendered.
  2. Percentage of completion method: The business entity uses the percentage of completion method for the nuclear steam supply system because the delivery of such service usually exceeds five years.

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Most popular questions from this chapter

For what reasons should the percentage-of-completion method be used over the completed-contract method whenever possible?

(Recognition of Profit on Long-Term Contracts) During 2017, Nilsen Company started a construction job with a contract price of \(1,600,000. The job was completed in 2019. The following information is available.

2017 2018 2019

Costs incurred to date \)400,000 \(825,000 \)1,070,000

Estimated costs to complete 600,000 275,000 鈥�0鈥�

Billings to date 300,000 900,000 1,600,000

Collections to date 270,000 810,000 1,425,000

Instructions

(b) Prepare all necessary journal entries for 2018.

What are the two basic methods of accounting for long-term construction contracts? Indicate the circumstances that determine when one or the other of these methods should be used.

(Sales with Returns) On March 10, 2017, Steele Company sold to Barr Hardware 200 tool sets at a price of \(50 each (cost \)30 per set) with terms of n/60, f.o.b. shipping point. Steele allows Barr to return any unused tool sets within 60 days of purchase. Steele estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2017, Barr returned six tool sets and received a credit to its account.

Instructions

(a) Prepare journal entries for Steele to record (1) the sale on March 10, 2017, (2) the return on March 25, 2017, and (c) any adjusting entries required on March 31, 2017 (when Steele prepares financial statements). Steele believes the original estimate of returns is correct.

(b) Indicate the income statement and balance sheet reporting by Steele at March 31, 2017, of the information related to the Barr sales transaction.

What are some examples of variable consideration? What are the two approaches for estimating variable consideration?
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