Chapter 3, Problem 4E

Identifying Accrual Basis Revenues

According to the revenue recognition principle, revenues should be recognized when they are earned, which happens when the company performs acts promised to the customer. For most businesses, this condition is met at the point of delivery of goods or services. The following transactions occurred in September:

1. a. A customer paid $10 cash for 10 song files from Apple’s iTunes store. Answer from Apple’s standpoint.
2. b. Home Depot provided a carpet installation for $2,000 cash. A comparable installation from other companies costs $3.000.
3. c. AT&T is scheduled to install digital cable at 1,000 Austin area homes next week. The installation charge is $100 per home. The terms require payment within 30 days of installation. Answer from AT&T’s standpoint.
4. d. AT&T completed the installations described in (c). Answer from AT&T’s standpoint.
5. e. AT&T received payment from customers for the installations described in (c). Answer from AT&T’s standpoint.
6. f. A customer purchased a ticket from American Airlines in September for $500 cash to travel in December. Answer from American Airlines’ standpoint.

Required:

For each of the transactions, if revenue is to be recognized in September, indicate the amount. If revenue is not to be recognized in September, explain why.