(Learning Objective 2: Applying the revenue recognition principles) A large auto manufacturer sells large fl eets of vehicles to auto rental companies, such as Acme and Harris.

Suppose Acme is negotiating with the auto manufacturer to purchase 950 vehicles. Write a short paragraph to explain to the auto manufacturer when the company should, and should not, record this sales revenue and the related expense for cost of goods sold. Mention the accounting principles that provide the basis for your explanation.