Tantramar Construction has an October 31 year end. On October 20Tantramar received a payment from Cantech Industries in the amount of $25,000 as an advance on the construction for the new head office of Cantech. Construction was to have started October 25 but due to an early snowfall, construction did not start until November 7. Construction is scheduled to be completed December 31. Following the revenue recognition criteria, the revenue which Tantramar should record in its October 31 Financial Statements is A) $10,000. B) $5,000. C) 0. D) none of the above.

Question

Quizplus · Accepted Answer

Revenue recognition criteria require that revenue is recognized when it is earned, regardless of when payment is received. Since the construction had not started by the year-end (October 31), Tantramar had not earned any of the advance payment, and therefore should not recognize any of the $25,000 as revenue in its October 31 financial statements.

Tantramar Construction Has an October 31 Year End