Matt owns a manufacturing plant that makes widgets.Matt will manufacture the next set of widgets on June 1.On January 2,Sarah makes a contract to buy 100 widgets,once they are made.On June 1,Matt makes the widgets.On June 10,Matt ships Sarah's 100 widgets.On June 12,Sarah pays for the widgets.Sarah receives the widgets on June 15.When are Sarah's 100 widgets identified?
A) on January 2, when Sarah and Matt entered into the contract
B) on June 1, when Matt made the widgets
C) on June 10, when Matt shipped the widgets
D) on June 12, when Sarah pays for the widgets
E) on June 15, when Sarah receives the widgets

Question

Quizplus · Accepted Answer

According to the revenue recognition principle, revenue can be recognized when the goods are shipped or delivered to the customer. In this case, Sarah's 100 widgets are identified when Matt ships them on June 10. Therefore, the correct answer is C. While the contract was made on January 2, until the widgets are manufactured and shipped, there is no revenue to recognize. Payment on June 12 and receipt on June 15 confirm the completion of the transaction but do not impact the identification of the widgets for revenue recognition purposes.

Matt Owns a Manufacturing Plant That Makes Widgets