Question

For each of the following independent items, indicate when revenue should be recognized.

a. Interest on loans made by a financial institution, receivable in annual payments.

b. Interest on loans made by a financial institution, receivable in three years when the customer, who has an excellent credit rating, will make payment.

c. Recognition of revenue from the cash sale of airline tickets, when the travel purchased will occur in the next fiscal period.

d. Transportation of freight by a trucking company for a customer; the customer is expected to make payment in accordance with the terms of the invoice in 60 days.

e. Growing, harvesting, and marketing of Christmas trees; the production cycle is ten years.

f. Building houses in a subdivision, when the project will take two years to complete and each house must be individually sold by the contractor. The contractor owns each house until title is transferred to the new owner.

g. Building houses in a subdivision, when the project will take two years to complete and the contractor is building the houses under a contract from the local government. The local government owns the land and the homes as they are constructed.

h. Selling undeveloped lots for future retirement homes in a western province, with very low down payment and long-term payment contracts.

i. Sale of a two-year parking permit by a parking garage, with one-half the sale price received at the time of the sale, and the remainder to be received in equal monthly payments over the period of the permit.

j. A fixed-price contract with the government to design and build a prototype of a space arm; the costs to complete the project cannot be reliably estimated. The government owns the arm throughout the contract.

k. A silver-mining company produces one million ounces of silver but stores the silver in a vault and waits for silver prices to increase.

Answer 1

:: Solution ::

A- Interest amount as revenue will be recognized annually.

B- Revenue will be recognized within 3 yrs by customer whose credit rating is high.

C- Revenue will be recognised in the year of sale even the travel will be in next fiscal period.

D- Revenue will be recognised when the customer makes payment within 60 days.

E- Revenue will be recognised on sale only as the prouction cycle is of 10 years. So, probably after 10 yrs on sale.

F- Revenue will be recognised on sale of the houses by contractor.

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