1) Given the following scenario, indicate when the firm should recognize revenue

Question

1)             Given the following scenario, indicate when the firm should recognize revenue and why.  Tomson Telecom maintains an inventory of telecommunications equipment.  One of their customers, Bayone Telephone Company placed an order for 10 new transformers valued at $5 million and Tomson delivered them just prior to December 31 (the end of Thomson's fiscal year).  Thomson's normal business practice for this class of customer is to enter into a written sales agreement that requires the signatures of all the authorized representatives of Thomson and its customers before the contract is binding.  However, Bayone has not signed the sales agreement because it is awaiting the requisite approval by the legal department.  Bayone's purchasing manager has oral agreed to the contract and assured you that the contract will be approved by the end of January.  

Explanation / Answer

the firm should recognize the revenue next year as contract has not been finalized.

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