Question

Revenue Recognition

Indicate which of the following transactions or events gives rise to the recognition of revenue in 2015 under the accrual basis of accounting. If revenue is not recognized, what account, if any, is credited?

• (a) On December 15, 2015, Howe Company received $20,000 as rent revenue for the six-month period beginning January 1, 2016.
• (b) Monroe Tractor Co., on July 1, 2015, sold one of its tractors and received $10,000 in cash and a note for $50,000 at 12% interest, payable in one year. The fair market value of the tractor is $60,000.
• (c) Oswald, Inc., issued additional shares of common stock on December 10, 2015, for $30,000 above par value.
• (d) Balance Company received a purchase order in 2015 from an established customer for $10,200 of merchandise. The merchandise was shipped on December 20, 2015. The company’s credit policy allows the customer to return the merchandise within 30 days and a 3% discount if paid within 20 days from shipment.
• (e) Gloria, Inc., sold merchandise costing $2,000 for $2,500 in August 2015. The terms of the sale are 15% down on a 12-month conditional sales contract, with title to the goods being retained by the seller until the contract price is paid in full.
• (f) On November 1, 2015, Jones & Whitlock entered into an agreement to audit the 2015 financial statements of Lehi Mills for a fee of $35,000. The audit work began on December 15, 2015, and will be completed around February 15, 2016.

Answer 1

Ans a oi recognition is required
ans b It’s an interest expense hence no revenue recognition
ans c No recognition required
ans d Sales will be credited by $10200
ans e Not recognized until the title of goods are transferred to buyer.
ans f Service Revenue (35000/2months*1/2 months) $8750
If any doubt please comment