At what point should revenue be recognized in each of the following independent cases? \\ Case A....


At what point should revenue be recognized in each of the following independent cases?

Case A. For Christmas presents, a McDonald's restaurant sells coupon books for $10. Each of the $1 coupons may be used in the restaurant any time during the following 12 months. The customer must pay cash when purchasing the coupon book.

Case B. Howard Land Development Corporation sold a lot to Quality Builders to construct a new home. The price of the lot was $50,000. Quality made a down payment of $100 and agreed to pay the balance in six months. After making the sale, Howard learned that Quality Builders often entered into these agreements but refused to pay the balance if it did not find a customer who wanted a house built on the lot.

Case C. Driscoll Corporation has always recorded revenue at the point of sale of its refrigerators. Recently, it has extended its warranties to cover all repairs for a period of seven years. One young accountant with the company now questions whether Driscoll has completed its earning process when it sells the refrigerators. She suggests that the warranty obligation for seven years means that a significant amount of additional work must be performed in the future.


Revenue is realized on the sale of goods or executing services. Recognizing revenue on the sale of goods has different rules than realizing revenue in the case of services rendered. Revenue is the generation of cash; thus, the concept of revenue is totally different than profits.

Answer and Explanation: 1

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Case A. McDonald's should recognize the revenue at the time of sale of its coupon books because as soon as it sells that book, it incurs an obligation...

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What is Revenue Recognition? - Principles, Process & Examples


Chapter 7 / Lesson 2

Revenue recognition states that revenue is recorded when it is realized, or realizable and earned, as opposed to received. Learn about the principles and process of revenue recognition with examples of recognition criteria before exploring some exceptions to the rule.

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