The following are brief descriptions of two companies in different lines of business. 1. Company A is a retailer. It makes sales on a daily basis for cash and on credit cards. 2. Company B is a health spa. It has recently signed contracts with numerous individuals to use its facilities over a two-year period. The contract price was collected in advance. Describe when revenue should be recognized by each company. If revenue should not be recognized at the time of sale, indicate what method should be used to recognize the revenue. Justify your decision.
The following are brief descriptions of two companies in different lines of business. 1. Company A is a retailer. It makes sales on a daily basis for cash and on credit cards. 2. Company B is a health spa. It has recently signed contracts with numerous individuals to use its facilities over a two-year period. The contract price was collected in advance. Describe when revenue should be recognized by each company. If revenue should not be recognized at the time of sale, indicate what method should be used to recognize the revenue. Justify your decision.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The following are brief descriptions of two companies in different lines of business.
1. Company A is a retailer. It makes sales on a daily basis for cash and on credit cards.
2. Company B is a health spa. It has recently signed contracts with numerous individuals to use its facilities over a two-year period. The contract price was collected in advance.
Describe when revenue should be recognized by each company. If revenue should not be recognized at the time of sale, indicate what method should be used to recognize the revenue. Justify your decision.
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