Respuesta :
Taylor should recognize revenue in 2021 in the amount of $600
When in a contract should revenue be recognized?
According to the revenue recognition principle, businesses should record revenues when the client is considered to have received the good or service rather than when payment is actually received. It can take longer and more in-depth investigation than one would think to determine what counts as a transaction.
As a result, once a contract has been established, a reporting entity must often recognize revenue for any promised products or services that have already been provided to the client, i.e., revenue is recognized on a cumulative catch-up basis.
Given:
Amount = Agreed amount to pay × Number of months/ Total months
where
The agreed amount to pay is $3,600
The number of months is 2 months (that is November and December)
The total months in a year is 12
Putting the values above:
Amount = $3,600 × 2/12
Amount = $600
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The correct question is:
On November 1, 2021, Taylor signed a one-year contract to provide handyman services on an as-needed basis to King Associates, with the contract to start immediately. King agreed to pay Taylor $3,600 for the one-year period. Taylor is confident that King will pay that amount, but payment is not scheduled to occur until 2022. Taylor should recognize revenue in 2021 in the amount of
Multiple Choice
$1,800.
$0.
$600.
$3,600.
