UPS, Federal Express, and Airborne are three of the major players in the highly competitive package delivery industry. Comparability is a key qualitative characteristic of accounting numbers that allows analysts to compare similar companies. A number of years ago, the revenue recognition footnotes of the three competitors revealed three different revenue recognition points for package delivery revenue: package delivery, percentage of service completed, and package pickup. These points correspond to the end, continuous recognition, and the beginning of the earnings process.
UNITED PARCEL SERVICE OF AMERICA, INC
Revenue is recognized upon delivery of a package.
FEDERAL EXPRESS CORPORATION
Revenue is generally recognized upon delivery of shipments. For shipments in transit, revenue is recorded based on the percentage of service completed.
AIRBORNE FREIGHT CORP
Domestic revenues and most domestic operating expenses are recognized when shipments are picked up from the customer. . . .
The Airborne footnote goes on to say, however: “The net revenue resulting from existing recognition policies does not materially differ from that which would be recognized on a delivery date basis.”

Required:
1. Do you believe that the difference between Airborne’s and UPS’s revenue recognition policies materially affects their reported earnings? Why or why not?
2. Assume that all three companies pick up packages from customers and receive payment of $1 million for services each day of the year and that each package is delivered the next day. What would each company’s service revenue for a year be given its stated revenue recognition policy?
3. Given your answers to requirement (2), under what conditions would that answer change?
4. Which revenue recognition rule would you prefer as a manager? Why?