Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Revenue is ordinarily recognized at the point of sale or exchange, when the earnings process is complete and the when the amount of revenue can

Revenue is ordinarily recognized at the point of sale or exchange, when the earnings process is complete and the when the amount of revenue can be objectively measured. For most businesses these tests are met when merchandise sold or services rendered. Like many rules, the revenue recognition principle has exceptions in some unique cases, like long term construction projects, certain farm products or precious stones.

Consider the America Health Fitness Club that sells lifetime memberships for $1,000 each. Lifetime members are entitled to use of the facilities for the remainder of their lives. America's experience and research shows that 70% of lifetime members stop attending and no longer use the facilities after approximately 5 years. Another 20% use the facilities for approximately 3 years, and the remaining 10% continue to visit the health club throughout their lives.

When do you believe a $1,000 receipt from a lifetime member should be recognized as revenue? Justify your answer.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of External Auditing

Authors: Brenda Porter, Jon Simon, David Hatherly

1st Edition

0471962120, 978-0471962120

More Books

Students also viewed these Accounting questions