Question

1.In December, X company receives an order for $50,000 worth of product. The order requests $30,000 of product to be shipped in January and $20,000 to be shipped in February. Due to unexpected high demand, X company shipped only $15,000 of product in January and the remaining $35,000 shipped in February. The customer paid the entire $50,000 in March. How much revenue should X record in each of the months in question?

2.Dewey, Cheatem and How, LLP provided $40,000 of legal services in March to a particular client. The bill was prepared and mailed in April and cash was received in May. When should the revenue be recorded?

Answer 1

Revenue is recognized at the point of sale. Recognizing revenue at point of sale is appropriate for many revenue arrangements because this is the time at which control of assets transfers to the customer. Change in control is the deciding factor in determining when a performance obligation is satisfied. The customer controls the product or service when it has the ability to direct the use and obtain all the benefit from product or service.

1) X Recognized revenue in the month of January :$15000 and in February: $35000.

2) Dewey , Cheatem Recognized revenue in the month of March: $40000 for legal services provided to clients.