(Choosing when to recognize revenue according to the objectives of financial reporting, LO 1, 2, 7) Pisquid Ltd. (Pisquid) is a manufacturer of kitchen furniture. In November 2004, Pisquid received an order for 15,000 sets of specially designed furniture from a large retail chain. The contract with the retail chain guaranteed the price that the retailer would pay and the quantity it would buy from Pisquid. The furniture is to be delivered monthly, in equal quantities each month, beginning in March 2005 and continuing through August 2006. The retail chain is to pay Pisquid within 45 days of receiving each shipment. Because Pisquid had excess capacity in its plant when the contact was signed, it decided to manufacture the full order as soon as it could. Pisquid began producing the furniture in January 2005 and completed making the 15,000 sets in November 2005.

Required:

a. Identify the different possible critical events that could be used to recognize revenue.

b. For the purposes of satisfying each of the following objectives, which critical event would you recommend for recognizing revenue? Explain. For purposes of answering, do not consider the constraints and the facts.

i. Tax minimization.

ii. Evaluation of management by outside shareholders.

ili. Income smoothing.

iv. Managing earnings to increase income.

v. Cash flow prediction.

c. Which of the revenue-recognition methods that you identified in

(a) satisfy the four revenue recognition criteria? Explain.