Cascades Enterprises ordered 4,000 brackets from McKey and Company on December 1, 2017, for a contracted price of $40,000. McKey completed manufacturing the brackets on January 17 of the next year and delivered them to Cascades on February 9. McKey received a check for $40,000 from Cascades on March 14.
a. Assume that McKey and Company prepares monthly income statements. In which month should McKey recognize the $40,000 revenue from the sale?
b. Justify your answer in (a) in terms of the four criteria of revenue recognition.
c. Are there conditions under which the revenue could be recognized in a different month than the month you chose in (a)?
d. Provide several reasons why McKey’s management might be interested in the timing of the recognition of revenue.