Which of the following types of service transactions is most likely to require the proportional performance method of revenue recognition based on the seller's direct costs to perform each act?
A) Processing of monthly mortgage payments by a mortgage banker
B) Providing lessons,examinations,and grading by a correspondence school
C) Providing maintenance services on equipment for a fixed periodic fee
D) Delivering freight (by a trucking firm)

Question

Quizplus · Accepted Answer

The proportional performance method of revenue recognition based on the seller's direct costs to perform each act is most applicable to services that are performed over a period of time and where the costs can be directly linked to the performance of each act. Providing lessons, examinations, and grading by a correspondence school fits this description well, as the school can directly associate its costs with the specific educational services (lessons, examinations, grading) it provides over the course of the educational program.

Which of the Following Types of Service Transactions Is Most