Question

C3-1 Applying the 5-step model (LO 3-1) On January 1, 2019, LeMoyne Construction Company signs a contract to build an office building for Franklin Corporation for $10 million. Franklin remits $1 million to LeMoyne upon signing the contract, $5 million when the foundation and all outside components are complete, and $4 million upon full completion. Franklin must pay LeMoyne an additional S100,000 if all construction is completed by July 31, 2020. Required: Apply the 5-step revenue recognition model to determine when revenue should be recognized by LeMoyne.

The Five-Step Revenue Recognition Model

A.

Step 1: Identify the Contract(s) with a Customer

B.

Step 2: Identify the Performance Obligations in the Contract

C.

Step 3: Determine the Transaction Price

D.

Step 4: Allocate the Transaction Price to the Performance Obligations in

the Contract

E.

Step 5: Recognize Revenue When (or as) the Entity Satisfies a

Performance Obligation

F.

Practical Expedients in Applying the Model

G.

Applying the Model to Contract Modifications

Answer 1

Ans: Le Moyne Construction Company

Recognition of revenue

A) Identify the contract with the customer

On January 1, 2009 , contract to build Office building for Franklin Corporation.

B) The performance obligation of the contract with the customer

Here performance obligation is to build Office building for Franklin Corporation.

c) Determine the transaction price

Transaction price for the Contract to build Office building for Franklin Corporation is $10 Million

d) Allocation of Transaction price to the performance obligation in the contract.

On signing of contract $1 million

on completion of foundation and all outside components $5 million

on full completion $4 million

If all construction is completed by July 31, 2020 , additionally   $1 million

e) Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation

So revenue from the contact is recognized as follows

On signing of contract $1 million

on completion of foundation and all outside components $5 million

on full completion $4 million

and $ 1 Million additional payment of $1 Million is recorded on July 31, 2020 only if the contract is completed by July 31,2020 or before.