Crittenden Cellular enters into a contract to supply Joe’s Country Corner Store with 10 smart phones at a price of $45 per phone on March 4, 2021. The phones will be delivered to Joe’s on March 15, 2021, FOB destination and terms are n/30. No returns are expected and Crittenden does not off er a warranty on the phones because one is provided by the manufacturer. The cost of the phones to Crittenden is $30 per phone. Crittenden is unable to determine the collectibility of the amount from Joe’s, but Joe’s pays the amount in full on April 30, 2021.

Instructions

a. Using the revenue recognition criteria for the earnings approach, answer the following questions:

1. When is Crittenden’s performance complete? When do the risks and rewards of ownership of the phones transfer to Joe’s?

2. Does Crittenden have any control over the goods or continuing involvement once the phones are delivered?

3. Can this transaction be measured reliably? If so, how much is the potential revenue?

4. Is it probable that there will be an increase in economic resources to Crittenden?

5. Are the costs associated with the sale known? If so, how much are the costs?

6. What is the critical event that triggers revenue recognition?

b. Prepare any journal entries required to recognize revenue on the appropriate dates.

Taking It Further

One of the criteria when using the earnings approach is to determine any costs associated with a sale. Cost of goods sold is one cost that is associated with the sale. What other costs might a business incur after a sale has been concluded?