Consider the following events listed in chronological order:
1. Dexter Maersk decides to buy a custom-made snowboard. He calls Great Canadian Snowboards and asks it to manufacture one for him.
2. The company e-mails Dexter a purchase order to fill out, which he immediately completes, signs, and sends back with the required 25% down payment.
3. Great Canadian Snowboards receives Dexter's purchase order and down payment, and begins working on the board.
4. Great Canadian Snowboards has its fiscal year end. At this time, Dexter's board is 75% completed.
5. The company completes the snowboard for Dexter and notifies him.
6. Dexter picks up his snowboard from the company and takes it home.
7. Dexter tries the snowboard out and likes it so much that he carves his initials in it.
8. Great Canadian Snowboards bills Dexter for the cost of the snowboard, less the 25% down payment.
9. The company receives partial payment (another 25%) from Dexter.
10. The company receives payment of the balance due from Dexter.
Instructions
In a memo to the president of Great Canadian Snowboards, answer these questions:
(a) When should Great Canadian Snowboards record the revenue and cost of goods sold related to the snowboard?
Refer to the revenue and expense recognition criteria in your answer.
(b) Suppose that, with his purchase order, Dexter was required to pay for 100% of the board. Would that change your answer to part (a)?