XM, Ltd. was a small engineering firm that built high-tech robotic devices for electronics manufacturers. One very
Question:
XM, Ltd. was a small engineering firm that built high-tech robotic devices for electronics manufacturers. One very complex device was partially completed at the end of 2025. Barb McLauren, head engineer, knew the experimental technology was a failure and XM, Ltd. would not be able to complete the $20,000,000 contract next year. However, the corporation was getting ready to be sold in January. She told the controller that the device was 80% complete at year-end and on track for successful completion the following spring; the controller accrued 80% of the contract revenue at December 31, 2025. McLauren sold the company in January 2026 and retired. By midyear, it became apparent that XM, Ltd. would not be able to complete the project successfully and the new owner would never recoup his investment.
Requirements
1. For complex, high-tech contracts, how does a company determine the percentage of completion and the amount of revenue to accrue?
2. What action do you think was taken by XM, Ltd. in 2026 with regard to the revenue that had been accrued the previous year?
Step by Step Answer:
Horngrens Financial And Managerial Accounting The Financial Chapters
ISBN: 9780137858651
8th Edition
Authors: Tracie Miller Nobles, Brenda Mattison