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Accounting Other

Accounting Exercise

  1. Scenario 1

 

In this scenario, Customer A is located in one area with an inventory of different products.  Metropolitan services Customer A by going to their site and collecting and transporting the waste back to Metropolitan Columbus facilities. Revenue should be recognized in this transaction not when the waste is first received, but rather, after the waste is safely destroyed on September 20. The revenues should be recognized on September 20.

 

  1. Scenario 2

 

In this scenario, Customer B is a hospital located in the New York area, where they must dispose contaminated hospital tools by law.  Metropolitan was able to collect the waste on March 31.  Although the customer was billed for services on March 31, Metropolitan should not recognize revenue until April 1st when facility personnel collected the hospital waste.  Revenue should be recognized on April 1st.

  1. Scenario 3

In this scenario, there was a minor earthquake that necessitated toxic waste clean-up.  The total length of the assignment is six months: Metropolitan workers will be on-site for a total of six months, providing services 7 days a week, 24 hours a day service to the area. The revenue recognition principle in this case is more difficult since services are provided over a long-period of time, rather than the previous examples in which they were based on a per-episode basis.

Furthermore, revenue recognition is complicated by the fact that the waste is transported over state lines that necessitates Metropolitan to assume “ownership” of the waste.  In this scenario, taking consideration of these factors, revenue should be divided on a per-day basis, and then charged as Metropolitan completes their daily routine. Revenue should be recognized on a daily basis.

  1. Scenario 4

In this scenario, Metropolitan is contracted to perform a variety of services for wasted produced in a university’s chemical laboratories.  There are a number of different processes this job required in order to finish the contract: 1) packaging the waste into (10) gallon steel drums; 2) further consolidation of that waste into six drums; 3) Shipping of those drums to Wyoming and then to Denver Colorado where they were ultimately disposed of.  With this process in mind, Metropolitan should recognize revenue on August 10th when the job is finished.

  1. Scenario 5

In this scenario, Metropolitan services the city of Chicago that holds a waste collection event monthly throughout the year. Metropolitan is tasked to run the collection areas for residents to drop off household hazardous waste. There is also a rather long process of getting the waste to its final destination, but revenue should not be recognized until it reaches Cheyenne. That is, all revenue should be recognized

 

  1. Footnote Text

The company sells waste management, transportation, processing, and burial services.  Maintenance revenue is recognized ratably over the term specified within each contract which can range from immediate disposal of waste to longer term commitments.  Revenue recognition may also differ based on the type of contract: while some contracts result in an immediate disposal of waste, others take significant processing and burial.

Sources:

EPA.  Regulations on Hazardous Waste Disposal.  Available at: www.epa.gov

FASB.  Revenue Recognition Principles. http://www.fasb.org/revenue_recognition.shtml

Needles, B. (2008).  Principles of Accounting.  Cengage Publishing.

 

University of Utah.  Principles of Accounting.  http://principlesofaccounting.com/