In 2018, Ginzel Corporation agreed to provide a client with 20 detailed marketin

Question

In 2018, Ginzel Corporation agreed to provide a client with 20 detailed marketing analyses of its client’s key products for a total fee of $110,000. The fee was computed as $5,000 per report x 20 reports = $100,000, plus $10,000 to extract the necessary data from the client’s system and convert it into the format Ginzel needs to do the analysis. It cost Ginzel $4,000 to complete the data extraction and conversion. As of December 31, 2018, Ginzel has completed the conversion of the data and has completed and delivered 7 of the 20 marketing reports to the client. Required: How much revenue should Ginzel recognize in 2018? How should Ginzel account for the $4,000 in costs it incurred to extract and convert the client’s data?

Explanation / Answer

Ginzel should recognize the revenue in 2018 to the extent of sevices it completed and delivered i.e

7*$5000 =$35000 plus $10000 towards fees for extraction of data from client's system. The total Revenue = $45000.

Ginzel should account for the $4000 cost it incurred as an expense for the year 2018. This is as per matching concept of accounting whereby expenses are recognized while matching the revenue for the same.

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