Revenue Recognition Paper 1

1

ABC operates a catering service that specializes in business luncheons for large corporations. ABC requires customers to place their orders 2 weeks in advance of the scheduled events. ABC bills its customers on the 10th day of the month following the date of service and requires that payment be made within 30 days of the billing date. Conceptually, ABC should recognize revenue from its catering services at the date when a






2

A company provides fertilization, insect control, and disease control services for a variety of trees, plants, and shrubs on a contract basis. For $50 per month, the company will visit the subscriber’s premises and apply appropriate mixtures. If the subscriber has any problems between the regularly scheduled application dates, the company’s personnel will promptly make additional service calls to correct the situation. Some subscribers elect to pay for an entire year because the company offers an annual price of $540 if paid in advance. For a subscriber who pays the annual fee in advance, the company should recognize the related revenue






3

On February 1, Year 1, a computer software firm agrees to program a software package. Twelve payments of $10,000 on the first of each month are to be made, with the first payment March 1, Year 1. The software is accepted by the client June 1, Year 2. How much Year 1 revenue should be recognized?






4

An airline should recognize revenue from airline tickets in the period when






5

A department store sells gift certificates that may be redeemed for merchandise. Each certificate expires 3 years after issuance. The revenue from the gift certificates should be recognized






6

To comply with the matching principle, the cost of labor services of an employee who participates in the manufacturing of a product normally should be charged to the income statement in the period in which the






7

Revenues of an entity are usually measured by the exchange values of the assets or liabilities involved. Recognition of revenue does not occur until






8

Robin Gavaskar, who recently founded a company that produces baseball bats and balls, wants to determine her company’s policy for revenue recognition. According to the revenue recognition principle, the mostappropriate time to recognize revenue would be when






9

It is proper to recognize revenue prior to the sale of merchandise when
I. The revenue will be reported as an installment sale.
II. The revenue will be reported under the cost-recovery method.






10

The calculation of the income recognized in the third year of a 5-year construction contract accounted for using the percentage-of-completion method includes the ratio of






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