Janet Nickels is a student at Blue Devil University. In the fall semester, she purchases a textbook directly from Amazon.com, Inc for $56. The book is to arrive in two days, just before Janet’s classes start. Amazon purchased the textbook for $35. Amazon’s shipping costs are $12, which is not charged to Janet.

 Additional information

Five Steps of Revenue Recognition:

Step 1: Identify the contract with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

For scenario above, complete the five-step process for revenue recognition. For  scenario, you should have a journal entry and note when the journal entry is recorded.

 Necessary

Identify the contract. Identify the performance obligations. What is Amazon’s journal entry to recognize revenue? When does Amazon record the journal entry (When is the critical issue)

Does your answer change if Janet rents the textbook for 6 months from Amazon? Assume the rental cost is $36, but everything else is the same.