Sonya’s Christmas Tree Company began operations on April 1, 2016, when Sonya bought a parcel of land on which she intended to grow Christmas trees. The normal growth time for a Christmas tree is approximately six years, so she divided her land into seven plots. In 2016, she planted the first plot with trees and watered, cultivated, and fertilized her trees all summer. In 2017, she planted her second plot with trees and watered, cultivated, and fertilized both planted plots. She continued with her plantings and cultivation every year through 2022, when she planted the last plot. In November 2022, she harvested the first plot of trees that she had planted in 2016. In 2023, she replanted the first plot.
a. Explain when the company should be recognizing revenue. Why is this the case?
b. Using your recommended revenue recognition policy, how would Sonya account for all her costs for growing the trees?