Consider the following three scenarios: I. ABC Lawncare performed lawn maintenan
ID: 2539854 • Letter: C
Question
Consider the following three scenarios:
I. ABC Lawncare performed lawn maintenance services for Drake Inc. on June 1st, and received payment of $500 for those services.
II. On June 1st, Melly Corp received payment for 100 pounds of raw material to be delivered to Drake Inc. in 6 months.
III. Lodo, LLC collected cash on June 1st for services rendered on May 1st.
Given these scenarios, revenue can not be recognized on June 1st for:
Multiple Choice
(A) I only
(B) I, II
(C) II, III only
(D) III only
Explanation / Answer
Solution:
I. As service performed on June 1st, therefore revenue will be recoganized on June 1st.
II. In this case, Melly Corp received advance payment for raw material to be delivered to Drake Inc. in 6 month, therefore revenue cannot be recognized on June 1st as Title of goods is not transferred on June 1.
III. In this case, Lodo, LLC collected cash on June 1st for service rendered on May 1st. Therefore revenue will be recoganized on May 1st i.e. date of services redndered
From above it is clear that revenue cannot be recognized on June 1st for II and III case. Hence option C is the right choice.