Oscar’s Environmental Services Inc. has a three-year contract to remove and recycle waste weekly from Ernie’s Ducky Factory Co. The contract requires payment at the beginning of each year. In the first year of the contract, Oscar's Environmental will incur approximately 80% of the cost of servicing Ernie's Ducky factory because it must construct a new recycling line to handle the waste from rubber ducky production. Ernie’s Ducky Factory Co. receives and consumes the benefits of each weekly garbage removal as each one is performed. Ernie's does not benefit from the recycling of its waste materials. When should Oscar’s Environmental recognize revenue? A. Oscar’s Hauling Inc. should recognize revenue over time because Ernie’s Ducky Factory Co. receives the benefits of each garbage removal service when it is performed. B. Oscar’s Environmental should use the cost-plus-margin method to determine how much revenue to recognize. C. Oscar’s Environmental should recognize revenue at a single point in time at the conclusion of the contract because Ernie’s Ducky Factory Co. receives the benefits of the garbage removal service at the conclusion of the contract. D. Oscar’s Environmental should recognize revenue over time because the customer controls the asset as the seller creates it or enhances it over time.
Oscar’s Environmental Services Inc. has a three-year contract to remove and recycle waste weekly from Ernie’s Ducky Factory Co. The contract requires payment at the beginning of each year. In the first year of the contract, Oscar's Environmental will incur approximately 80% of the cost of servicing Ernie's Ducky factory because it must construct a new recycling line to handle the waste from rubber ducky production. Ernie’s Ducky Factory Co. receives and consumes the benefits of each weekly garbage removal as each one is performed. Ernie's does not benefit from the recycling of its waste materials.
When should Oscar’s Environmental recognize revenue?
A. Oscar’s Hauling Inc. should recognize revenue over time because Ernie’s Ducky Factory Co. receives the benefits of each garbage removal service when it is performed.
B. Oscar’s Environmental should use the cost-plus-margin method to determine how much revenue to recognize.
C. Oscar’s Environmental should recognize revenue at a single point in time at the conclusion of the contract because Ernie’s Ducky Factory Co. receives the benefits of the garbage removal service at the conclusion of the contract.
D. Oscar’s Environmental should recognize revenue over time because the customer controls the asset as the seller creates it or enhances it over time.
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