Slattery Company was formed on January 1, 2013, to build a single product.

The company issued no-par common stock on that date for $220,000 cash. The product costs $20 to make, all of which is paid in cash at the time of production. Slattery sells each unit of the product for $37 on credit and incurs sales commissions per unit of $4 cash. In 2013, Slattery produced 10,000 units, shipped 8,000 units, and received payment for 8,000 units.

Required:

1. Prepare the 2013 income statement and ending balance sheet under each of the following methods:

a. Revenue recognition at the completion of the earnings process

b. Revenue recognition prior to the completion of the earnings process

c. Revenue recognition at the completion of the earnings process as cash is received

2. Which method provides the most useful information to users? Under what circumstances would the other methods provide more useful information?

3. In 2014, the company produced 15,000 units, shipped 16,000 units, and received payment for 17,000 units. What conclusion can you make about the balance in Retained Earnings on December 31, 2014, for each method of revenue recognition?