Metropolitan Environmental Services

Metropolitan Environmental Services, Inc. a case study in revenue recognition policy
Name Course Instructor Date
Metropolitan Environmental Services, Inc. a case study in revenue recognition policy1. For each scenario, and for each type of service (e.g., collection and decontamination, transportation, disposal), describe when and why and how much revenue should be recognized at a particular point in time or during a particular time period. Show calculations and provide example journal entries for relevant accounting periods.Revenue recognition refers to the timing and measurement of revenues.
Accounting record hazardous material disposal
Metropolitan
Scenario 1
Metropolitan incurred an obligation to perform in the future, equal to $ 350,000, but Metropolitan first received $ 200,000. So there is cash recorded valued at $200,000 and contra account recording advances from the customer at also $ 200,000. Subsequently, there was collection, transportation and disposal of the waste, and Metropolitan destroyed the waste on October 1. So there ought to be sales revenue of $350,000 recorded October 5th and there is a balance of $150,000 (350,000-200,000).
September 5th
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $ 200,000
October 5
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Scenario 2
Estimated costs for collection and decontamination are $10,000,000, but there is a 20% markup, meaning the company wills one $2,000,000. The transportation fees are $500,000 while the disposal and waste burial fees are $5,000,000. Different parts of the contract are completed at different times with contract for destruction being completed after the collection and transportation. Under ASC 605-15-25-1, concept no. 5 revenue is recognized when realized or realizable, and has been earned (FASB, 2017). Additionally, revenues are earned when services are rendered or goods transferred. Revenue-earning activities are considered when substantial accomplishment is where the entity is then entitled to recognize the revenues. Thus, revenue is recognized when a project is completed.
1-Nov

Incurred costs




Collection and decontamination

$10,000,000



Cash


$10,000,000


Collection and decontamination costs








Billings



10-Nov

Accounts Receivable

$500,000



Billing


$500,000


Billing Transportation



1-Dec

Accounts Receivable

$5,000,000



Billing


$5,000,000


Billing Disposal and waste burial








Recording Revenue

$17,500,000



Billing




Revenue




Collection and decontamination


$12,000,000


Transportation fees


$500,000


Disposal and waste burial


$5,000,000


Recording revenue



Scenario 3
According to the accrued accounting basis, income must be recorded in the same accounting period in which it was obtained, regardless of the timing of the related cash flows of that...