Binz Company provides cleaning services and sells garbage bins to office clients. On June 1^st, Binz delivered 100 garbage bins to a client, and also entered into a 5-year contract for Binz to provide cleaning services to that client. Which of the following is most likely to be true? A) Revenue for the garbage bins and the cleaning services must be recognized on June 1^st. B) Revenue for the garbage bins is recognized on June 1^st and no revenue will be recognized for the cleaning services until the end of the 5^th year. C) Revenue for the garbage bins is recognized on June 1^st and revenue for the cleaning service is recognized over the 5 years as those services are performed. D) Binz Company should not recognize any revenue until the end of the 5^th year.

Question

Quizplus · Accepted Answer

The garbage bins and cleaning services are two performance obligations, as they are both capable of being distinct and separately identifiable. The cleaning services qualify for revenue recognition over time, as the customer will consume those services as they are provided. The garbage bins do not qualify for revenue recognition over time, so revenue will be recognized at the point in time when control of the bins passes to the customer, which occurs upon delivery.

Binz Company Provides Cleaning Services and Sells Garbage Bins to Office