I. Revenue Recognition Scenarios
Each of the following independent situations relates to the recognition of revenue:
- Morning Donut agrees to supply donuts and coffee on a weekly basis to a local business. The contract starts on January 1 and runs for 1 year and requires semiannual payments at the beginning of each 6 month period. Morning Donut charges $1,600 per month for the donuts and coffee. The local business pays Morning Donut $9,600 on January 1 and July 1.
- Flying High Airline sells an airline ticket to a customer for $500 on April 9. Flying High collects the fare at the time the reservation is made. The customer completes the flight in July.
- Parcel Freight Company ships a package for a customer under its express same-day shipping option for $100. The package is shipped and delivered on September 5. Parcel Freight bills the customer on September 15 and collects the cash from the customer on October 10.
- Builds-A-Lot constructs a “spec” home in a subdivision from April though June (3 month construction period). The construction cost of the house is $200,000. Builds-A-Lot reaches an agreement to sell the house for $240,000 on August 20. The sale is completed and is closed on October 5.
- The Raleigh Knights sell four season tickets to a customer on July 1. The customer pays the entire amount at the time of purchase (July 1). The Knights play 10 regular season games throughout the Fall and the cost of one season ticket is $250.
Required: For each situation, indicate when and how much revenue a company should recognize revenue.