Revenue recognition is one of the top causes for financial statement restatements. In addition, revenue recognition is an area commonly questioned by the Securities and Exchange Commission (SEC) staff in their review of public filings and resultant comment letter process. Furthermore, revenue recognition is often prey to financial fraud.
Coverage of revenue recognition in intermediate accounting courses is typically limited to learning and applying the criteria for revenue recognition outlined in the Financial Accounting
Standards Board’s (FASB) Statement of Financial Accounting Concepts No. 5, Recognition and
Measurement in Financial Statements of Business Enterprises, to routine transactions and topics, such as …show more content…
4. What would constitute ‘‘sufficient evidence’’ to support CCPC’s expected redemption rate of 2 percent?
5. What are the accounting implications if CCPC’s estimated redemption rate changes to 2.5 percent at a later point in time?
**NOTE: COMPLETE THIS CASE, BUT DO NOT TURN THIS IN. **
Case Four: Facts
Chemicals Incorporated (ChemInc) is a public company (i.e., an SEC registrant) with a calendar year-end. Its headquarters and manufacturing facilities are located in Chicago, Illinois. ChemInc specializes in manufacturing medical compounds. Given the nature of these medical compounds, many require special storage until they are used in formulating drugs and/or medications by a pharmaceutical company. The special storage requirements include strict regulation of the temperature, air pressure, and humidity. ChemInc stores the medical compounds it manufactures in the appropriate storage facilities until they are purchased by and shipped to a customer. Qualified shipping specialists are used to ship the medical compounds to the customer.
On December 15, 20X9, ChemInc enters into a bill-and-hold transaction with Bond Pharmaceutical (Bond). On that date, ChemInc receives a written order from Bond for $1,000,000 of Medical Compound A (MCA). The inventory costs associated with the MCA being purchased by Bond are