18E_b - Horngren'S Financial And Managerial Accounting

Question

Question :Momentous Occasions is a photography business that shoots videos at college parties. The freshman class pays \(1,000 in advance on March 3 to guarantee services for its party to be held on April 2. The sophomore class promises a minimum of \)2,800 for filming its formal dance and actually pays cash of \(4,100 on February 28 at the dance. Answer the following questions about the correct way to account for revenue under the accrual basis: a. Considering the \)1,000 paid by the freshman class, on what date was revenue recognized? Did the recognition occur on the same date cash was received? b. Considering the $4,100 paid by the sophomore class, on what date was revenue recognized? Did the recognition occur on the same date cash was received?

Step-by-Step Solution

Answer

Revenue will be recognized on February 28. Revenue is recognized on same date. 

Step-by-Step-Solution Step1: Explanation on Revenue Recognition

As per the revenue recognition principle, revenues are recorded when goods or services provided finally to the customers

Step 2: Revenue Recognition in Case of sophomore class

In case of  sophomore class, revenue will be recognized on February 28 as on this date service will be performed. Merely making promise of $2,800 does not constitute a revenue transaction.