2.Estimate Oracle’s 1990 sales if revenue is recognized at delivery rather than when the contract is signed. Sales recognized at contract date with 160 days receivable. $689.898/160= $4.311,86
Sales when recognized at delivery: $4.311,86*120=$517.423,5
3.If the firm’s 1990 cost of sales ratio and average tax rate are unaffected by a change to the more conservative revenue recognition method, what would be the affect of this accounting change on the company’s 1990 net income?
4.Use the 1990 cost of sales to sales ratio and the average tax rate to estimate the size of the opening retained earnings write-off required if Oracle decides to adopt the new revenue recognition method retroactively. The profit is $37.282 lower than before adopting the new revenue recognition method. Therefore the retained earnings are: $267.475-$37.282= $230.193
5.How would a change in revenue recognition affect the firm’s lending contracts and management compensation? There credit rate will be improved due to less risk and higher liquidity. The firm is required to maintain certain financial ratios under the line of credit agreements. The firm will more promptly in...