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Quiz on Revenue Recognition

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and the study of accounting. Good luck!

This week's quiz brought to you by:
Barbara W. Scofield, PhD, CPA
Associate Professor of Accounting and Director of the Financial Accounting Concentration
University of Dallas, Irving, Texas



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1 - iTennis Company sells tennis rackets over the Internet to sporting goods distributors. It has relationships negotiated with distributors so that the order is shipped to them FOB destination within 24 hours of the order. An invoice is sent each month for all of the sales made that month. The customer has 45 days from the date of the invoice to pay iTennis Company for its order. The distributors typically pay on the 44th or 45th day allowed before late fees are added to the bill.

When does iTennis Company recognize sales revenue?
When the order is placed by the customer
When the order is shipped to the customer
When the delivery is received by the customer
When the customer pays for the merchandise

2 - Dallas Tennis Company sells tennis rackets to consumers from a boutique rented at each country club in the county. When customers order a tennis racket, they pay for it by the next day or the order is cancelled. Then Dallas Tennis Company orders the tennis racket from the manufacturer and notifies the customer when the tennis racket is delivered to the boutique, typically in 2 to 3 weeks. The customer then picks up the racket from the boutique.

When does Dallas Tennis Company recognize sales revenue?
When the order is placed by the customer
When the customer pays for the order
When the boutique notifies the customer to pick up the tennis racket
When the customer picks up the tennis racket from the boutique

3 - Tennis R Us sells tennis rackets to consumers. Tennis R Us allows customers to place a tennis racket on layaway and make periodic payments over 90 days. The customer takes home the racket when the customer makes the final payment. If the racket isn’t paid for in 90 days, then the racket is returned to stock, and the customer receives a gift card for the amount paid.

When does Tennis R Us recognize sales revenue?
Proportionately on each day a payment is made on the racket
When the customer takes home the tennis racket
90 days after the racket is placed on layaway
When the customer takes home the tennis racket or 90 days after the racket is placed on layaway

4 - Custom Racket Company is in its first year as a seller of custom-made tennis rackets to the tennis competitor who needs a particular length or weight, etc. that is not generally available in standard brands. Customers order from company representatives and pay for the racket at the time of order. Since the rackets are personally fitted to the customer, the orders are cancelable only within ten days of the order and nonrefundable thereafter. The rackets are delivered to the customer’s home by the company representative in six to eight weeks.

When does Custom Racket Company recognize sales revenue?
When the order is placed and paid for by the customer
Eleven days after the order is placed
When the crafting of the racket is completed by Custom Racket
When the customer receives the racket

5 - Small Supplier Company sells tennis rackets to small sporting goods retailers, and offers terms that allow the retailers to delay paying for the rackets until the tennis rackets are sold to the retailers’ customers. Small Supplier Company only accepts returns for damaged merchandise, so the retailers sign an acceptance letter and fax it to Small Supplier Company within two days of receiving a shipment. The retailers communicate to Small Supplier monthly with any additional orders and payment for the rackets sold during the month.

When does Small Supplier Company recognize sales revenue?
When the order is shipped to the customer
When the delivery is received by the customer
When the customer accepts the merchandise
When the customer pays for the merchandise

6 - Big Supplier Company sells tennis rackets through major retailers. Big Supplier Company connects to its customers’ ERP systems each night and replenishes the retailer with the exact number of tennis rackets that have been sold that day. The next day Big Supplier initiates an electronic payment from the customer directly to its bank account. Most shipments take two days to arrive at a retailer, so Big Supplier Company receives its payment before the customer receives its replacement merchandise.

When does Big Supplier Company recognize sales revenue?
When Big Supplier Company identifies a sale to a consumer by its customer, a major retailer
When Big Supplier Company ships merchandise
When Big Supplier Company receives payment for merchandise
When the merchandise is delivered to the customer, a major retailer

7 - Gemini Company sells gift cards for tennis rackets as well as tennis rackets themselves. Both are sold for cash or Mastercard only. The gift cards expire if not completely used within 12 months. No refunds are provided for unused gift cards.

When does Gemini Company recognize sales revenue?
When the gift card is used or twelve months after the gift card is sold
Twelve months after the gift card is sold
When the gift card is used
When the gift card is sold.

8 - Harmony Company is the exclusive seller of tennis rackets in Narnia. These rackets are custom made in the national colors, and cannot be sold to other customers. Narnia initially requested delivery on April 1, but has requested a delay until June 1 because unusual weather conditions have delayed the start of the tennis season there. Harmony boxes the tennis rackets for shipment, but holds them in its warehouse until shipping them out on May 25 FOB destination to arrive on June 1. Narnia placed a deposit of 10% of the purchase price on January 15, within 10 days of the order, and paid the remaining 90% on April 15 as originally arranged plus a 1% per month fee for storage and insurance for April and May.

When does Harmony Company recognize sales revenue?
8-Jan
1-Apr
15-Apr
1-Jun

9 - Modern Tennis Company is selling a new concept tennis racket this season and is providing an unusual 180 day return policy to the sporting goods stores to encourage them to purchase and display this innovative product that is still untested in tournament play. The sporting goods stores receive their orders within 10 days of ordering, and typically pay for the order in 30-60 days. However, they will receive a reimbursement in cash for any tennis rackets returned within 180 days of their delivery date.

When does Modern Tennis Company recognize sales revenue?
When the order is placed by the sporting goods stores
When Modern Tennis Company ships the tennis rackets
When the sporting goods stores receive the tennis rackets
When the return period expires

10 - Antique Tennis Company is a dealer in rare tennis rackets. Antique Tennis purchases its rackets FOB destination as the rackets become available and repackages and ships them out within 24 hours FOB shipping point to the next customer on its waiting list. The tennis rackets may be delivered anywhere in the world, with shipping time from overnight to 3 day shipping guaranteed, depending on the location. The customers provide their (bank) credit card numbers at the time they join the waiting list, and the credit card is charged at the time of shipment.

When does Antique Tennis Company recognize sales revenue?
When Antique Tennis Company receives a tennis racket
When Antique Tennis Company ships a tennis racket
When the customer’s credit card is charged
When the customer receives the tennis racket

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