Rothbart Manufacturing agrees to manufacture bumper cars for 12 Banners Amusement Parks. Under the terms of the contract, 12 Banners will pay Rothbart a total of $60,000, and 12 Banners can cancel the contract if it so chooses but must pay Rothbart for work completed. Rothbart believes that, if 12 Banners cancelled the contract, Rothbart could sell the bumper cars to another amusement park and still make a profit. The manufacturing contract is expected to last six months, and as of December 31, 2018, the job is 80% complete. How much revenue should Rothbart recognize in 2018 for this contract?

Question

Quizplus · Accepted Answer

This arrangement does not qualify for revenue recognition over time, because the asset the seller is creating has an alternative use to it. Therefore, Rothbart must wait until completion of the contract before recognizing revenue.

Rothbart Manufacturing Agrees to Manufacture Bumper Cars for 12 Banners