Question

On January 1, a flower shop contracts with customers to provide flowers for their wedding on June 2. The total contract price is $3,000, payable in equal installments for the next six months on the first of each month (with the first payment due January 1). How much will be recorded as revenue during the month of April?

a) $0
b) $500
c) $1,000
d) $500 and $1,000

Answer 1

The flower shop should record $500 as revenue during the month of April, as this represents the monthly installment of the total contract amount payable over six months.

Step-by-step explanation:

The question provided is concerned with how revenue should be recognized within a specific time period for a flower shop that has arranged a contract with customers for a wedding. According to the terms of the contract, the flower shop will receive a total payment of $3,000 divided into six equal payments, with one payment being made at the beginning of each month starting from January 1.

In the context of revenue recognition, the amount of revenue that should be recorded during the month of April can be determined by considering the payment schedule. Since the total contract price is $3,000 and this sum is to be paid over six months, each monthly installment is $500 ($3,000 / 6 months = $500 per month). Therefore, the revenue recorded for April will simply be the installment received at the beginning of the month, which is $500.