Question

On April 1 of year 0 Stephanie received a $9,000 payment for full payment on a three-year service contract (under the contract Stephanie is obligated to provide advisory services for the next three years). What amount of income should Stephanie recognize in year 0 if she uses the accrual method of accounting? (She recognized $2,250 for financial accounting purposes.)

Answer 1

$2,250

Step-by-step explanation:

As for the provided information:

The amount received for total service for 3 years = $9,000

Date on which amount is received = 1 April

Therefore, in current year she would have served the service from April to December, that means for a period of 9 months

The revenue recognition based on accrual principal shall be,

Revenue for each month = $9,000/36 months = $250 per month

Therefore revenue for 9 month up to the end of current year 0 = $250
`*` 9 months = $2,250

Since Stephanie has recognized the same amount of revenue, she is correct in recording as per accrual system.