Simply Manufacturers has signed an order to supply 10,000 chairs at a price to be determined sixty days after delivery. Payment is due at that time. The price per chair may range from $0 to $100 depending on a series of events, the outcome of which cannot be accurately predicted. Which of the following factors is most likely to precludes Simply from recognizing revenue at time of delivery.
A)The purchaser bears the significant risks and rewards of ownership.
B)The revenue is variable in nature.
C)The purchaser is not obligated to pay for the goods at time of delivery.
D)Simply had not paid its suppliers for the materials used to manufacture the chairs.

Question

Quizplus · Accepted Answer

The variable nature of the revenue, i.e. the fact that the price per chair is not fixed and can range from $0 to $100 depending on uncertain events, makes it difficult to determine the total revenue that Simply will earn from the sale. Therefore, revenue recognition at time of delivery may not be appropriate. The other options are not as relevant to revenue recognition. A is related to transfer of ownership, but does not address revenue recognition specifically. C is related to payment terms, but does not necessarily impact revenue recognition. D is related to cost of goods sold, but does not impact revenue recognition directly.

Simply Manufacturers Has Signed an Order to Supply 10,000 Chairs