For each of the following situations indicate the audit evidence that should be obtained to determine whether revenue should be recognized or not in the current period. Use the five-steps processes for recognizing revenue to make your determination.

Daves Discount Stores is a discount retailer that generates revenue from the sale of membership fees it charges customers to shop at its stores. The membership arrangement requires the customer to pay the entire membership fee (usually $48) at the beginning of the arrangement. However, the customer can unilaterally cancel the membership arrangement and receive a refund of the unused portion. Based on past experiences, Daves estimates that 35 percent of the customers will cancel their memberships before the end of the contract.

1. Select which option is correct according to the situation above:

a. Revenue Should be recognized in the current period.

b. Revenue Should be recognized with the passage of time.

c. Revenue Should not be recognized in the current period.

2. Select the correct step from of the 5-step process that should be used to draw your conclusion:

a. Step 1

b. Step 2

c. Step 3

d. Step 4

e. Step 5