In 2018, Ginzel Corporation agreed to provide a client with 20 detailed marketin
ID: 2331905 • Letter: I
Question
In 2018, Ginzel Corporation agreed to provide a client with 20 detailed marketing analyses of its client’s key products for a total fee of $110,000. The fee was computed as $5,000 per report x 20 reports = $100,000, plus $10,000 to extract the necessary data from the client’s system and convert it into the format Ginzel needs to do the analysis. It cost Ginzel $4,000 to complete the data extraction and conversion.
As of December 31, 2018, Ginzel has completed the conversion of the data and has completed and delivered 7 of the 20 marketing reports to the client.
Required:
How much revenue should Ginzel recognize in 2018?
How should Ginzel account for the $4,000 in costs it incurred to extract and convert the client’s data?
Explanation / Answer
The whole Revenue amount of $100,000 should be spread over 20 reports and the revenue will be recognised when these reports is completed. So in the given case, 7 reports are completed and delivered in 2018. Also, the whole of 10,000 of the extraction fee is recognised in 2018 itself as it is completed in 2018 only.
1. Revenue Ginzel shoud recognise in 2018 = 35,000 + 10,000 = $45,000 Answer
2. The cost of $4,000 should be accounted for in 2018 itself as this cost is associated with extraction and convertion of the client’s data.