You are the Senior Accountant for the Patty Corporation which has several divisions. They each keep their own accounting books and have chosen the appropriate method of revenue recognition based on their operations.
Pat’s Electronics Division
Pat’s Electronics Division sells computers through agents in various cities. Agents send orders and down payments to our company. The division then ships the goods F.O.B. shipping point directly to the customers. Revenue is recognized at the point of sale.
Additional Financial Data:
Orders for fiscal year 2012 $ 3,000,000
Down Payments collected in 2012 $ 300,000
Billed and shipped in 2012 $ 2,400,000
Freight billed in 2012 $ 70,000
Commissions paid to Agents (after ship to customer) 10%
Warranty Returns as % of Sales 1%
Pickle Construction Division
The Pickle construction division was working on one project for the 2012 fiscal year. They use the percentage of completion revenue recognition method.
Contract for new administration building
Total Contract Amount $ 60,000,000
Contract Grant Date August 14, 2012
Construction Began September 1, 2012
Estimated Cost to Complete at beginning of contract $ 52,000,000
Estimated Time to Complete Project 2 years
As of Dec 31, 2012
Construction Costs incurred to date $ 14,140,000
Billings to date $ 19,500,000
Expected costs to complete $ 36,360,000
Peace Book Distribution Division
Our book distribution division sells to national bookstores. Our division allows for up to 25% of sales in returns. For the past 4 years, returns have averaged 20%. We record revenue based on revenue recognition when the right of return exists.
Total Sales for 2012 $ 9,000,000
Sales Still Available for return for six months $ 2,000,000
Actual Returns on Sales not returnable 21%
2011 Sales collected in 2012 $ 2,500,000
2011 Sales returned in 2012 19%
(a) We have studied several 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.
– Point of sale.
(b) Calculate the revenue to be recognized in fiscal year 2012 for each division of Patty Corporation in accordance with generally accepted accounting principles. Show all calculations for full credit. Prepare in Excel.