Willingham Construction is in the business of building high-priced, custom, single-family homes. The company,headquartered in Anaheim, California, operates throughout the Southern California area. The construction periodfor the average home built by Willingham is six months, although some homes have taken as long as nine months.You have just been hired by Willingham as the assistant controller and one of your first tasks is to evaluate thecompany’s revenue recognition policy. The company presently recognizes revenue upon completion for all of itsprojects and management is now considering whether revenue recognition over time is appropriate.Required:Write a 1- to 2-page memo to Virginia Reynolds, company controller, describing the differences between theeffects of recognizing revenue over time and upon project completion on the income statement and balance sheet.Indicate any criteria specifying when revenue should be recognized. Be sure to include references to GAAP asthey pertain to the choice of method. Do not address the differential effects on income taxes nor the effect on thefinancial statements of switching between methods.
Willingham Construction is in the business of building high-priced, custom, single-family homes. The company,
headquartered in Anaheim, California, operates throughout the Southern California area. The construction period
for the average home built by Willingham is six months, although some homes have taken as long as nine months.
You have just been hired by Willingham as the assistant controller and one of your first tasks is to evaluate the
company’s revenue recognition policy. The company presently recognizes revenue upon completion for all of its
projects and management is now considering whether revenue recognition over time is appropriate.
Required:
Write a 1- to 2-page memo to Virginia Reynolds, company controller, describing the differences between the
effects of recognizing revenue over time and upon project completion on the income statement and
Indicate any criteria specifying when revenue should be recognized. Be sure to include references to GAAP as
they pertain to the choice of method. Do not address the differential effects on income taxes nor the effect on the
financial statements of switching between methods.
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