E-Z-GO 2008 Annual Report Download - page 65

using the sales price charged when the same or similar items are sold separately. We recognize revenue when the recognition criteria for each unit
of accounting are met.
Taxes collected from customers and remitted to government authorities are recorded in the statements of operations on a net basis within cost
of sales.
Long-Term Contracts — Revenues under long-term contracts are accounted for under the percentage-of-completion method of accounting in
accordance with American Institute of Certified Public Accountants Statement of Position No. 81-1, “Accounting for Performance of Construction-
Type and Certain Production-Type Contracts.” Under the percentage-of-completion method, we estimate profit as the difference between the total
estimated revenue and cost of a contract. We then recognize that estimated profit over the contract term based on either the costs incurred (under
the cost-to-cost method, which is typically used for development effort) or the units delivered (under the units-of-delivery method, which is used
for production effort), as appropriate under the circumstances. Revenues under all cost-reimbursement contracts are recorded using the cost-to-
cost method. Revenues under fixed-price contracts generally are recorded using the units-of-delivery method; however, when the contracts
provide for periodic delivery after a lengthy period of time over which significant costs are incurred or require a significant amount of development
effort in relation to total contract volume, revenues are recorded using the cost-to-cost method.
Our long-term contract profits are based on estimates of total contract cost and revenue utilizing current contract specifications, expected
engineering requirements and the achievement of contract milestones, including product deliveries. Certain contracts are awarded with fixed-
price incentive fees that also are considered when estimating revenues and profit rates. Contract costs typically are incurred over a period of
several years, and the estimation of these costs requires substantial judgment. We review and revise these estimates periodically throughout the
contract term. Revisions to contract profits are recorded when the revisions to estimated revenues or costs are made. Anticipated losses on
contracts are recognized in full in the period in which the losses become probable and estimable.
Our Bell segment has a joint venture with The Boeing Company to provide engineering, development and test services related to the V-22 aircraft,
as well as to produce the V-22 aircraft, under a number of separate contracts with the U.S. Government (the “V-22 Contracts”). This joint venture
agreement creates contractual, rather than ownership, rights related to the V 22. Accordingly, we do not account for this joint venture under the
equity method of accounting. We account for all of our rights and obligations under the specific requirements of the V-22 Contracts allocated to
us under the joint venture agreement. Revenues and cost of sales reflect our performance under the V-22 Contracts with revenues recognized
using the units-of-delivery method. We include all assets used in performance of the V-22 Contracts that we own, including inventory and unpaid
receivables, and all liabilities arising from our obligations under the V-22 Contracts in our balance sheet.
Finance Revenues — Finance revenues include interest on finance receivables, direct loan origination costs and fees received. We recognize
interest using the interest method to provide a constant rate of return over the terms of the receivables. Revenues on direct loan origination costs
and fees received are deferred and amortized to finance revenues over the contractual lives of the respective receivables using the interest method.
When receivables and credit lines are sold or prepaid, unamortized amounts are recognized in finance revenues. We generally suspend the
accrual of interest income for accounts that are contractually delinquent by more than three months. In addition, detailed reviews of loans may
result in earlier suspension. We resume the accrual of interest when the loan becomes contractually current and recognize the suspended interest
income at that time. Cash payments on nonaccrual accounts, including finance charges, generally are applied to reduce loan principal.
Leases — Certain qualifying noncancelable aircraft and other product lease contracts are accounted for as sales-type leases. Upon delivery, we
record the present value of all payments (net of executory costs and any guaranteed residual values) under these leases as revenues, and the
related costs of the product are charged to cost of sales. For lease financing transactions that do not qualify as sales-type leases, we record
revenues as earned over the lease period.
Finance Receivables Held for Sale
Finance receivables are classified as held for sale when we determine that we no longer have the intent to hold the receivables until maturity or
when we no longer have the ability to hold the receivables until maturity. Our decision to classify certain finance receivables as held for sale is
based on a number of factors, including, but not limited to, contractual duration, type of collateral, credit strength of the borrowers, the existence
of continued contractual commitments, the perceived marketability of the receivables and our ability to hold the finance receivables to maturity.
On an ongoing basis, these factors, combined with our overall liquidation strategy, determine which finance receivables we have the positive
intent to hold for the foreseeable future and which receivables we will hold for sale.
52
Notes to the Consolidated Financial Statements