Question

The McCutcheon Company is a restaurant in a remote area of Montana. The owner buys a steak from a local farmer for $7. On Tuesday, the chef is paid $2 to cook this meat. A waitress is paid $1 to deliver the steak to a customer. The customer is charged $18. The customer does not have any money with him and tells the owner that he will pay the amount in the following week. The owner knows the customer and allows the payment to be delayed. According to U.S. GAAP, what amount of revenue should the McCutcheon Company report on Tuesday when the sale is made?

a. Zero b. $8 c. $10 d. $18

Answer 1

The McCutcheon Company should report $18 as revenue when the steak is delivered to the customer, following U.S. GAAP's revenue recognition principle.

Step-by-step explanation:

The McCutcheon Company should report $18 as revenue on the day the sale is made, even though the payment is to be received laterThe McCutcheon Company should report $18 as revenue on the day the sale is made, even though the payment is to be received later. According to the U.S. GAAP (Generally Accepted Accounting Principles), revenue is recognized when the performance obligation is satisfied, which is upon the delivery of the steak to the customer. Since the service was provided on Tuesday, the revenue is earned and should be recognized on that day, regardless of when the payment is actually made.. According to the U.S. GAAP (Generally Accepted Accounting Principles), revenue is recognized when the performance obligation is satisfied, which is upon the delivery of the steak to the customer. Since the service was provided on Tuesday, the revenue is earned and should be recognized on that day, regardless of when the payment is actually made.