Accounting 351: Exercise Explanation on Revenue Recognition Principles

This assignment solution addresses an accounting exercise from the ACCT 351 course, focusing on revenue recognition principles. The exercise involves a scenario where Estate Construction is building a structure for CyberB. The solution explains when Estate should recognize revenue, considering the agreement's terms. It applies the criteria for recognizing revenue over time, particularly when the customer gains ownership of the partially completed asset if the contract is terminated. The solution clarifies that revenue recognition is appropriate during construction using the percentage of completion method. The document references relevant accounting standards and provides a clear, concise explanation of the application of these principles to the given scenario. The solution incorporates the provided reference materials from the course syllabus and textbook, including the Spiceland text and the exercise explanation rubric.

Running head: ACCOUNTING 351 COMMUNICATION
ACCOUNTING 351 COMMUNICATION
Name of the Student
Name of the University
Authors note

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ACCOUNTING 351 COMMUNICATION
Answer 1:
As per the guidance note issued by FASB, the revenue as per the accounting for real
estate will be recognized if the following conditions are satisfied –
 The seller in the contract has transferred to the buyer all the risks and rewards
about the ownership of the business and, the seller did not keep any of the control
on the real estate project which is usually associated with the ownership of the
contract (Hepp, 2018).
 There is no significant risks and uncertainty about the consideration amount,
which will be derived from that of the sales of the real estate business.
 The seller has created the asset which is having no other alternative use to the
seller, and the seller receives the payment for the work done till date even if the
customer has cancelled the contract for any reason. (Rutledge, Karim and Kim,
2016)
In the case, Estate Corporation, if the agreement framed with Cyber B cannot be
completed because of any reason, then the Cyber B will be having the ownership of the partially
completed building. Therefore, the revenue will be recognized by the estate corporation by using
the percentage of completion method. Thus, revenue for the company will be equal to the
amount of the partially completed contract.

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ACCOUNTING 351 COMMUNICATION
References
Hepp, J., 2018. ASC 606: Challenges in understanding and applying revenue
recognition. Journal of Accounting Education, 42, pp.49-51.
Rutledge, R.W., Karim, K.E. and Kim, T., 2016. The FASB's and IASB's New Revenue
Recognition Standard: What Will Be the Effects on Earnings Quality, Deferred Taxes,
Management Compensation, and on Industry‐Specific Reporting?. Journal of Corporate
Accounting & Finance, 27(6), pp.43-48.