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swisha2k
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Posted: 27 May 2009 at 20:08 \| IP Logged

A mining company that has a long-term contract to sell its entire output of coal would recognize revenue when
A. the product is available for sale to customer
B. cash is received from the customer
C. goods are delivered to the customer
D. management chooses to do so.

I picked A since promise of payment is realized by the contract...
Am i correct?

jay_usa
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Posted: 27 May 2009 at 20:42 \| IP Logged

Revenue is recognized when it is Realized and Earned. and following four criteria must exist for any revenue to be recognized

1) Contract
2) Price determination
3) Collection reasonably assured
4) Delivery occured or services rendered.

In my opinion, From the above facts in the example, we can assume the first 3 are met. So, once goods delivery occurs, we can recongnize revenue. ( In other words, until you deliver the goods, you have not earned the revenue ).

Hope that helps. Let us know the correct answer.

Thanks

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jay_usa
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Posted: 27 May 2009 at 20:53 \| IP Logged

so, basically I would go with answer C

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Jay CPA,CGMA,CITP,MBA

swisha2k
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Posted: 06 Jun 2009 at 22:08 \| IP Logged

Update: answer was A; company can recognize revenue early because of the long-term contract.

kj_nyc
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Posted: 06 Jun 2009 at 22:40 \| IP Logged

Choice A makes sense. If anyone else is using Bisk 2009, pp.12-3 to 12-4 says

Revenue is sometimes recognized at the completion of production activity. The three necessary conditions rarely are present except in the case of certain precious metals and agricultural products:

1. There must be a relatively stable market for the product.

2. Marketing costs must be nominal.

3. The units must be homogeneous.

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