Revenue Recognition
Response to the following problem:
The following are brief descriptions of several companies in different lines of business.
A. Company A is a construction company. It has recently signed a contract to build a highway over a three-year period. A down payment was collected; the remaining collections will occur periodically over the construction period based upon the degree of completion.
B. Company B is a retailer. It makes sales on a daily basis for cash and on credit cards.
C. Company C is a health spa. It has recently signed contracts with numerous individuals to use its facilities over a two-year period. The contract price was collected in advance.
D. Company D is a land development company. It has recently begun developing a "retirement community" and has sold lots to senior citizens. The sales contract requires a small down payment and periodic payments until completion of the roads and a clubhouse, after which the remainder of the purchase price is due. Prior to this point, a purchaser may cancel the contract and receive a refund of all payments.
Required
Describe when revenue should be recognized by each company. If revenue should not be recognized at the time of sale, indicate what method should be used to recognize the revenue. Justify your decision.