Westinghouse Electric Corporation The following note appears in the “Summary of Significant Accounting Policies” section of the Annual Report of Westinghouse Electric Corporation.
Note 1 (in part): Revenue Recognition. Sales are primarily recorded as products are shipped and services are rendered. The percentage-of-completion method of accounting is used for nuclear steam supply system orders with delivery schedules generally in excess of five years and for certain construction projects where this method of accounting is consistent with industry practice.
WFSI revenues are generally recognized on the accrual method. When accounts become delinquent for more than two payment periods, usually 60 days, income is recognized only as payments are received. Such delinquent accounts for which no payments are received in the current month, and other accounts on which income is not being recognized because the receipt of either principal or interest is questionable, are classified as nonearning receivables.
Instructions
(a) Identify the revenue recognition methods used by Westinghouse Electric as discussed in its note on significant accounting policies.
(b) Under what conditions are the revenue recognition methods identified in the first paragraph of Westinghouse’s note above acceptable?
(c) From the information provided in the second paragraph of Westinghouse’s note, identify the type of operation being described and defend the acceptability of the revenue recognition method.