There are a variety of methods of revenue recognition

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Comprehensive Three-Part Revenue Recognition Van Hatten Industries has three operating divisions-Depp Construction Division, Dement Publishing Division, and Ankiel Securities Division. Each division maintains its own accounting system and method of revenue recognition. Depp Construction Division During the fiscal year ended November 30, 2010. Depp Construction Division had one construction project in process. A $30,000,000 contract for construction of a civic center was granted on June 19, 2010, and construction began on August 1, 2010. 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, 2010, construction costs of $7,200,000 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, 2010, and were estimated to amount to only $16,800,000 because of an expected decline in raw materials costs. Revenue recognition is based upon a percentage-of-completion method. Dement Publishing Division The Dement Publishing Division sells large volumes of novels to a few book distributors, which in turn sell to several national chains of bookstores. Dement allows distributors to return up to 30% of sales, and distributors give the same terms to bookstores. While returns from individual titles fluctuate greatly, the returns from distributors have averaged 20% in each of the past 5 years. A total of $7,000,000 of paperback novel sales was made to distributors during fiscal 2010. On November 30, 2010 (the end of the fiscal year) $1,500,000 of fiscal 2010 sales was still subject to return privileges over the next 6 months. The remaining $5,500,000 of fiscal 2010 sales had actual returns of 21%. Sales from fiscal 2009 totaling $2,000,000 were collected in fiscal 2010 less 18% returns. This division records revenue according to the method referred to as revenue recognition when the right of return exists. Ankiel Securities Division Ankiel Securities Division works through manufacturers' agents in various cities. Orders for alarm systems and down payments are forwarded from agents, and the Division ships the goods f.o.b. factory directly to customers (usually police departments and security guard companies). Customers are billed directly for the balance due plus actual shipping costs. The company received orders for $6,000,000 of goods during the fiscal year ended November 30, 2010. Down payments of $600,000 were received, and $5,200,000 of goods were billed and shipped. Actual freight costs of $100,000 were also billed. Commissions of 10% on product price are paid to manufacturing agents after goods are shipped to customers. Such goods are warranted for 90 days after shipment, and warranty returns have been about 1% of sales. Revenue is recognized at the point of sale by this division.

(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) Completion-of-production.
(3) Percentage-of-completion.
(4) Installment-sales.

(b) Compute the revenue to be recognized in fiscal year 2010 for each of the three operating divisions of Van Hatten Industries in accordance with generally accepted accounting principles. 

Reference no: EM131119702

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