Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 18: Q36Q. (page 1032)

What methods are used in practice to determine the extent of progress toward completion? Identify some “input measures” and some “output measures” that might be used to determine the extent of progress.

Short Answer

Expert verified

The cost-to-cost approach and the units-of-delivery method are used to determine the level of progress toward completion.

Step by step solution

01

Definition of Percentage-of-Completion Method

As a corporation approaches the end of a long-term contract, the percentage-of-completion technique measures revenues, expenditures, and gross profit. Deferring recognition of these items till the end of the contract distorts the efforts (costs) and successes of the accounting periods (revenues).

02

Methods used to determine the extent of progress towards completion and some input & output measures used

The units-of-delivery technique and the cost-to-cost methodologyare used to calculate the progress toward completion. Costs and work hours are input measurements, whereas tonnage produced, stories erected in a building, and miles of roads finished are output metrics. All of these tactics aimto quantify progress in terms of costs, units, or value-added.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

When does a company satisfy a performance obligation? Identify the indicators of satisfaction of a performance obligation.

Hillside Company enters into a contract with Sanchez Inc. to provide a software license and 3 years of customer support. The customer-support services require specialized knowledge that only Hillside Company’s employees can perform. How many performance obligations are in the contract?

(Determine Transaction Price) Aaron’s Agency sells an insurance policy offered by Capital Insurance Company for a commission of \(100 on January 2, 2017. In addition, Aaron will receive an additional commission of \)10 each year for as long as the policyholder does not cancel the policy. After selling the policy, Aaron does not have any remaining performance obligations. Based on Aaron’s significant experience with these types of policies, it estimates that policyholders on average renew the policy for 4.5 years. It has no evidence to suggest that previous policyholder behavior will change.

Instructions

(a) Determine the transaction price of the arrangement for Aaron, assuming 100 policies are sold.

(b) Determine the revenue that Aaron will recognize in 2017.

On what basis should the transaction price be allocated to various performance obligations? Identify the approaches for allocating the transaction price.

Fuhremann Co. is a full-service manufacturer of surveillance equipment. Customers can purchase any combination of equipment, installation services, and training as part of Fuhremann’s security services. Thus, each of these performance obligations is separate from individual standalone selling prices. Laplante Inc. purchased cameras, installation, and training at a total price of \(80,000. Estimated standalone selling prices of the equipment, installation, and training are \)90,000, \(7,000, and \)3,000, respectively. How should the transaction price be allocated to the equipment, installation, and training?
See all solutions

Recommended explanations on Business Studies Textbooks

Corporate Finance

Read Explanation

Managerial Economics

Read Explanation

Human Resources

Read Explanation

Business Operations

Read Explanation

Operational Management

Read Explanation

Introduction to Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free