St. Hubertus Crossing: Revenue recognition under ASC 606 guidance

The revenue recognition standard, ASU No. 2014-09--codified as ASC 606 Revenue Recognition, which replaces in its entirety ASC 605 Revenue Recognition and amends several other sections of the codification--is significantly affecting revenue recognition in many industries, including the construction industry. An actual construction project inspired this case. The contract for the project included the construction of a bridge over a river, highway bypasses, and a walking and bike path as well as environmental rehabilitation of riverbanks which had been cleared in the past. We provide background information on the need for a new bridge and the various governmental units involved, along with revenue and cost data, and a schedule for completing the various parts of the contract. You are asked to make multiple judgments related to the application of the guidance, including (1) whether the contract in question meets the requirements of a contract as specified in the guidance, (2) what the performance obligations embedded in the contract are, and (3) how revenue might be allocated to the performance obligations. You also must determine appropriate treatment for the changes to the contract and consider the possibility of acceleration of revenue recognition. The case is intended to make you aware that the application of the new guidance may require professional judgment in the face of ambiguous fact patterns and to provide them with experience in dealing with a more complex case than is typically provided in end-of-chapter problems.