Question

On September 1, Year 1, Great Lakes Equipment receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Great Lakes Equipment should recognize on the income statement for the year ending December Year 1?

a)$24,000
b)$12,000
c)$3,000
d)$4,000

Answer 1

Great Lakes Equipment should recognize $4,000 of revenue on the income statement for the year ending December Year 1, reflecting the four months of service provided out of the 24-month contract.

Step-by-step explanation:

The question pertains to revenue recognition in accounting.

Great Lakes Equipment received $24,000 on September 1, Year 1, for services to be rendered over the next two years.

To determine how much revenue should be recognized in the income statement for the year ending December Year 1, we need to calculate the pro-rata portion of the total payment that corresponds to the service performed during that specific period.

From September 1 to December 31 is a four-month period within the first year.

Since the service is to be performed evenly over two years (24 months), each month accounts for 1/24th of the total payment.

Thus, for four months, the revenue to be recognized would be (4/24) x $24,000, which equals $4,000.

Therefore, the correct answer is d) $4,000.