Marvin's Appliance Store sold a 3-year service contract on a refrigerator receiving the entire amount in cash at the time of the sale. Recording the revenue from the prepaid service contract over its 3-year life is an example of
A)following the objectivity assumption.
B)applying the conservatism constraint.
C)applying the realization principle.
D)applying the revenue recognition principle.

Question

Quizplus · Accepted Answer

Recording revenue from a prepaid service contract over its life is an example of applying the revenue recognition principle, which requires revenue to be recognized when it is earned and realized, regardless of when payment is received. The realization principle would also apply in this situation but is not as specific to revenue recognition as the revenue recognition principle. The objectivity assumption and conservatism constraint are not directly relevant to this scenario.

Marvin's Appliance Store Sold a 3-Year Service Contract on a Refrigerator