1. It has been a particularly hard year for Cedar Grove, Ltd., a US corporation using US GAAP accounting standards.  The economy is in a fairly steep recession, and sales of its major product have tanked.  Usually careful in screening customers, only selling to customers they feel confident will pay their invoice when it is due, they now fear that their inventory of goods will be obsolete if not sold soon, and so have chosen to sell these goods to a foreign buyer in bulk. The buyer demanded that the terms of the purchase require no down payment, and no payment is due for 6 months. Cedar Grove recognizes that the buyer has a poor record of making timely payments to US firms. Cedar Grove’s attorney advises them that it would be almost impossible to successfully prosecute a lawsuit in the buyer’s home country to force payment.  Nonetheless, Cedar Grove saw this sale as the only hope to sell these goods.

 

1. List the three requirements for revenue to be recognized.

 

1.

2.

3. 

2. Under the circumstances listed above, should revenue from the sale to the foreign buyer be recognized in the year of the sale?

Yes _____ No _____

3. Why or why not?