Question
In: Accounting
On January 15, 2021, Bella Vista Company enters into a contract to build custom equipment for...
On January 15, 2021, Bella Vista Company enters into a contract
to build custom equipment for ABC Carpet Company. The contract
specified a delivery date of March 1. The equipment was not
delivered until March 31. The contract required full payment of
$75,000 30 days after delivery. The revenue for this contract
should be
recorded on January 15, 2021.
recorded on April 30, 2021.
recorded on March 1, 2021.
recorded on March 31, 2021.
Solutions
Expert Solution
(D) Recorded on March 31,2021.
Explanation : As per accrual basis, revenue recognized and recorded when it has been earned. Cash received or not is immaterial for recognition and recording of revenue.
In the given contract , actually the said equipment has not been delivered before March 31, 2021. Thus before March 31 , 2021 contract revenue can't be recorded. So option A ( 15 January 2021) and option C ( March 1, 2021) are not the correct alternatives.
Contract actually performed on 31st March 2021 and just after 30 days, that is on April 30 , 2021 amount for equipment supplied has been collected. But collection date would not been considered as revenue recording date as per accrual basis. So, option (B) April 30 ,2021 is also considered as wrong alternative .
As per accrual basis the date of completion of contract performance is considered as revenue recording date. So, on March 31, 2021 finally revenue can be recorded.
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