The following independent situations require professional judgment for determining when to recognize revenue from the transactions. Identity when revenue should be recognized in each of the situations. A) Southwest Airlines sells you an advance purchase airline ticket in September for your flight home in December.
B) Ultimate Electronics sells you a home theater on a "no money down and full payment in three months' promotional deal.
C) The Toronto Blue lays sell season tickets online to games in the Skydome. Fans can purchase the tickets at any time, although the season doesn't officially begin until April. The major league baseball season runs from April through October.
D) You borrow money in August from RBC Financial Group. The loan and the interest are repayable in full in November.
E) In August, you order a sweater from Seats using its online catalog. The sweater arrives in September, which you charged to your Sears credit card. You receive and pay the Sears bill in October.

According to the revenue recognition principle, a business should only recognize revenue when the it has substantially completed the earnings process.

A) December

B) In three months

C) Once the season starts

D) November

E) October

Explanation:

Besides the payment date, sometimes in order to establish when should a business recognize revenue we must consider its refund and return policies.

A) SWA can only consider the ticket revenue after the flight has taken place. Before that, the possibility for the passenger to request a refund (even though penalties might apply) exist. Also the flight might be cancelled, forcing SWA to refund the money to all its clients that don´t want to fly with them anymore.

B) UE can only recognize revenue after the client pays for the home theater.

C) The TBJ can recognize revenue only after the season starts, since before that date its fans can request a refund (also considering that penalties might apply).

D) RBC Financial Group can only recognize revenue after the loan is paid back. The possibility of the client defaulting exists.

E) Since you are using Sears´ credit card, it can only recognize revenue once you pay your bill in October. If the sale would have been done using a different credit card, Sears should have recognized the revenue in August.