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18 September, 11:57

Revenue and the Recognition Principle Heartstrings Gift Shoppe sells an assortment of gifts for any occasion. During October, Heartstrings started a Gift-of-the-Month program. Under the terms of this program, beginning in the month of the sale, Heartstrings would select and deliver a random gift each month, over the next 12 months, to the person the customer selects as a recipient. During October, Heartstrings sold 25 of these packages for a total of $11,280 in cash. For the month of October, calculate the amount of revenue that Heartstrings will recognize.

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  1. 18 September, 14:37
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    For October it will recognize 937.5 dollars

    Explanation:

    The company is selling into the future thus; it assumes the obligation to deliver the goods to the recipient.

    Each month it will accrue earnings according to the gift delivered,

    During October it sold 25 package for $ 11,280

    Each package last for 12 months so, a month will generate 11,250 / 12 = 937.5 dollars

    The remaining will be considered unearned revenue.
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