Discuss and justify when each of the following businesses should recognize reven

Question

Discuss and justify when each of the following businesses should recognize revenue and identify any additional income measurement issues that are likely to arise. 1. Limited Brands, Inc., a clothing retailer, sells product in stores and online. Returns are allowed within 30 days with a valid receipt. 2. Intuit Inc. develops tax preparation software that it sells to its customers for a flat fee. No further payment is required and the software cannot be returned, only exchanged if defective. 3. Time-Warner Inc. sells magazines through annual pre-paid subscriptions. 4. Wells Fargo & Company lends money to individuals for home mortgages in return for interest payments.

Explanation / Answer

4-interest payment would be recognized when it will have become due. interest income would be recognized in the period it which it has due and would be recorded in financial statement of that period.

3-annual subscription would be recorded as income received in advance and will be shown in liability and would be credited into income account as and when become due for the period

2-income would be recognized when sale is made and no adjustment entry would be required for exchange of goods

1-income would be recognized when sale is made but when if any return is made would be included in sales return

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