Question

On June 1, Year 1 Oxian Corp. receives $24,000 from a customer for work to be performed evenly over the next 2 years. What is the amount of revenue that Oxian should recognize on the December 31 income statement for Year 1?

a)$12,000
b)$5,000
c)$7,000
d)$6,000

Answer 1

The amount of revenue that Oxian should recognize on the December 31 income statement for Year 1 is $6,000 (option d).

Step-by-step explanation:

The amount of revenue that Oxian should recognize on the December 31 income statement for Year 1 is $6,000 (option d).

Since Oxian received $24,000 from the customer for work to be performed evenly over the next 2 years, it should recognize revenue on a straight-line basis over the 2-year period.

Therefore, the revenue recognized on the December 31 income statement for Year 1 would be $24,000 / 2 = $12,000. However, since only half of Year 1 has passed by December 31, Year 1, Oxian should recognize only half of the $12,000, which is $12,000 / 2 = $6,000.