The Case of in the Trading Stamp Industry – When to Recognize Revenue
Bonanza Trading Stamps, Inc. was formed early this year to sell
trading stamps throughout the Southwest to retailers, who distribute the
stamps gratuitously to their customers. Books for accumulating the
stamps and catalogs illustrating the merchandise for which the stamps
may be exchanged are given free to retailers for distribution to stamp
recipients. Centers with inventories of merchandise premiums have been
established for redemption of the stamps. Retailers may not return
unused stamps to Bonanza.
The schedule below expresses Bonanza’s expectations as to the
percentages of a normal month’s activity that will be attained. For this
purpose, a normal month’s activity is defined as the level of
operations expected when expansion of activities ceases or tapers off to
a stable rate. Bonanza expects to attain this level in the third year
and an average $2 million per month in stamps sales throughout the third
year.
| Actual Stamp Sales | Premium Purchases | Stamp Redemptions | |
|---|---|---|---|
| Month | Percent | Percent | Percent |
| 6 | 30% | 40% | 10% |
| 12 | 60% | 60% | 45% |
| 18 | 80% | 80% | 70% |
| 24 | 90% | 90% | 80% |
| 30 | 100% | 100% | 95% |
Required:
After reading the textbook chapter for this week on income concepts,
discuss the factors to be considered in determining when revenue should
be recognized in the measuring of the income of a business enterprise.
Discuss when you think revenue should be recognized in the case of
Bonanza Trading Stamps, Inc.
Your well-written paper must
be 2-3 pages, in addition to title and reference pages. The paper should
be formatted according to the APA REQUIREMENTS .Cite at least two peer-reviewed sources, in addition to the required reading for the module.
Chapter 5 in Financial Accounting Theory and Analysis: Text and Cases
