A) There are few revenue recognition methods based on the nature of the industry. Some of them would be acceptable for CM2 Corporation:
Sales-Basis method – revenue is recognized at the time of sale. Time of sale in this case is defined as time when the title for product or service is in buyer’s possession. This method is the most accurate method. This method of revenue recognition would be acceptable for CM2 Corporation.
The companies use Percentage-of-Completion method when it might take years to deliver the final product to the customers. This method is used if there is a long-term contract with the customer and it is possible to estimate the percentage of completion for that contract. Currently, there is no reason for CM2 to use this method.
Completed-Contract method is used to record revenue one time at the end of contract. This method is used if there is no long-term legal contract and
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The profit will be recognized only after the project is finished and all expenses are recognized. This method can create the understatement of gross profit initially. As of right now, there is no need to use this method.
Completion method – under this method, CM2 Corporation can recognize revenue for services provided under contract once they are paid for. This is a good method to recognize revenue for long-term contracts. Another method is Specific-Performance method. I believe, this is the best way of recognizing revenue for services on demand for CM2 Corporation at this time. Under this method, the revenue is recognized once the service was completed.
Revenue Recognition for Software products is more complicated. Per GAAP, CM2 Corporation is required to establish vendor-specific objective evidence of fair value of each product separately and each service described in the contract. This is required, so CM2 would be able to recognize revenue partially before the end date of the