Question

On January 5, Merkel Inc. purchases office equipment for its new branch office from Norbert Company. Merkel requests that the equipment be delivered after the renovation of the branch location is completed. On May 1, Merkel informs Norbert that it wishes delivery as soon as possible. The equipment is delivered on May 4. On what date should Norbert recognize the related revenue?

Answer 1

Answer:

The answer is: January 5

Explanation:

This is a bill and hold arrangement which enables payment ahead of the delivery of the equipment.

Once Merkel places the purchase order, it should record the cost of the office equipment. It is usual that companies pay in advance a percentage of the total cost and the rest when the equipment is delivered.