Question

Dowell Manufacturing contracts to produce bumper cars for Five Flags Parks. Under the terms of the contract, Five Flags will pay Dowell a total of $60,000 when bumper cars are delivered six months later, and Five Flags can cancel the contract but must pay Dowell for work completed. Dowell believes that, if Five Flags cancelled the contract, Dowell could not sell the bumper cars to another park. As of December 31, 2020, the job is 80% complete. How much revenue should Dowell recognize in 2020 for this contract?

a.
$0

b.
$12,000

c.
$30,000

d.
$48,000

e.
$60,000

Answer 1

As per the terms of the contract the five flags parks must have to pay for the work completed even after the contract got cancelled.

So basis above discussion we can conclude that the Dowell manufacturing must recognise revenue on the %age of work completed i.e 80%

Hence Dowell must recognise $48,000 ($60,000 x 80%) as revenue since they are eligible for the same even the contract got cancelled.

Conclusion

Hence the correct option is d) $48,000