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.

Your client, Thomson Telecom, maintains an inventory of telecommunications equipment. Bayone Telephone Company placed an order for 10 new transformers valued at $5 million, and Thomson delivered them just prior to December 31. Thomsons normal business practice for this class of customer is to enter into a written sales agreement that requires the signatures of all the authorized representatives of Thomson and its customer before the contract is binding. However, Bayone has not signed the sales agreement because it is awaiting the requisite approval by the legal department. Bayones purchasing department has orally agreed to the contract, and the purchasing manager has assured you that the contract will be approved the first week of next year.

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