Question

For $50 a month, Rawl Co. visits its customers’ premises and performs insect control services. If customers experience problems between regularly scheduled visits, Rawl makes service calls at no additional charge. Instead of paying monthly, customers may pay an annual fee of $540 in advance. For a customer who pays the annual fee in advance, Rawl should recognize the related revenueEvenly over the contract year as the services are performed.At the end of the contract year after all of the services have been performed.When the cash is collected.At the end of the fiscal year.

Answer 1

Answer:

The answer is: Rawl Co. should recognize the related revenue evenly over the contract year as the services are performed.

Explanation:

According to the conservatism principle, Rawl Co. should record revenues and assets only when you are sure that they will occur. So they should record revenue only as the service is provided on a monthly basis.

It should determine the monthly payment = $540 / 12 = $45 per month.

So at the end of every month, it should recognize $45 as revenue.