Question

In 2017, a major drug company agreed to give a not-for-profit private college $420,000 to perform testing of a new drug. An advance payment of $335,000 was received in 2017. The college was to receive $1,500 per individual test. In 2017, the college completed 130 tests. How much revenue should the college report for 2017?
A) $ 195,000

B) $ 200,000

C) $ 335,000

D) $ 420,000

Answer 1

Answer:

A) $195,000.

Explanation:

The conservatism principle states that revenue should be recorded only when you are sure that it will occur.

In this case, the college completed 130 tests during 2017 and the drug company pays them $1,500 per test. The college's revenue = $1,500 per test x 130 tests = $195,000