Question

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.

Answer 1

For October it will recognize 937.5 dollars

Step-by-step 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.