Question

On November 1, 2021, Taylor signed a one-year contract to provide handyman services on an as-needed basis to King Associates, with the contract to start immediately. King agreed to pay Taylor $4,440 for the one-year period. Taylor is confident that King will pay that amount, but payment is not scheduled to occur until 2022. Taylor should recognize revenue in 2021 in the amount of Multiple Choice $4,440. $740. $2,220. $0.

Answer 1

Answer:

The correct answer is $740

Explanation:

The amount which will be recognized by Taylor as revenue in the year 2021 is computed as:

Amount = Agreed amount to pay × Number of months/ Total months

where

Agreed amount to pay is $4,440

Number of months is 2 months (that is November and December)

Total months in a year is 12

Putting the values above:

Amount = $4,440 × 2/12

Amount = $740

This arrangement qualifies for the recognition of revenue over the time as the customer consumes the advantage of the seller service as the seller offers. Therefore, Taylor would be acknowledge the revenue of $740 .