METROPOLITAN CASE STUDY
Part I: Codifications and quotations used in following scenarios
1) Service revenue should be recognized on a straight-line basis, unless evidence suggests that the revenue is earned or obligations are fulfilled in a different pattern, over the contractual term of the arrangement or the expected period during which those specified services will be performed, whichever is longer. (SAB Topic 13A3, Interpretive Response to ques.6)
2) Revenue should be deferred until the specifications have been achieved or the customer accepts the service. (SAB Topic 13A3b, Interpretive Response to ques.1)
3) Being realized or realizable. Revenue and gains generally are not ...view middle of the document...
All revenue is deferred until this final activity has been performed.
b. Revenue from the sale of products usually is recognized at the point of product delivery. The point of delivery refers to the date legal title to the product passes from seller to buyer.
c. Service revenue often is recognized over time, in proportion to the amount of service performed.
d. At times, revenue recognition is delayed due to a high degree of uncertainty related to ultimate cash collection.
(Spiceland, J. David, James F. Sepe, and Mark Nelson. Intermediate Accounting. 6th ed.
New York: McGraw-Hill Irwin, 2011. 238. Print.)
Part II: Scenarios
Sept 05 A/R 5,000
Service Revenue 5,000
Sept 25 Cash 5,000
Explanation: According to 2, 4, 5, 6b from Part I, revenue should be recognized on Sept 5 when customer accepts the service (waste was taken), entity accomplished the job or rendered the service (collecting waste from customer A), and the legal title to the product passed from the seller to the buyer (ownership of waste passed from customer to Metropolitan on Sept 05).
Mar 31 A/R 4,000
Service Revenue 4,000
Apr 07 Cash 4,000
Explanation: Same as Scenario II. According to 2, 4, 5, 6b from Part I, revenue should be recognized when the waste was picked up from the hospital on March 31 because service was rendered. Although the waste couldn’t be received by the facility on March 31, Metropolitan claimed the ownership of the waste when physically picked up on that day.
May 03 Unbilled A/R XXXXXX
Deferred Revenue XXXXXX
Date Disposed Deferred Revenue XXXXXX
Service Revenue XXXXXX
Date Cash Rcvd Cash XXXXXX
Unbilled A/R XXXXXX
Explanation: According to 2, 4, 6a, 6c, 6d from Part I, revenue should be deferred until the specifications have been achieved for multiple steps services. Entity must be finished to entitle the benefits represented by the revenue. In this case, revenue is recognized partially according to the period...