Exciting Revenue Recognition Scenario with FOB Destination Terms
Will Wally record revenue for the transaction on its 12/31 income statement?
A. Half of the performance obligations have been met, as the items have shipped, so Wally can realize half of the revenue related to this transaction, or $12,000.
B. Yes, Wally has satisfied the performance obligation and can record revenue of $24,000.
C. There is not enough information to determine the amount of revenue Wally should recognize.
D. No, no revenue is recorded for items shipped FOB destination until those items reach the buyer.
Answer: No, no revenue is recorded for items shipped FOB destination until those items reach the buyer.
In this scenario, Wally will not record revenue for the transaction on its 12/31 income statement as the shipment is still in transit and has not reached the buyer. According to FOB destination terms, ownership of the goods only transfers once they have been delivered to the buyer. Until the buyer receives the goods, Wally cannot recognize revenue from the sale.
It is important for companies to follow revenue recognition principles correctly to accurately reflect their financial performance. In this case, Wally will need to wait until the items reach the buyer before recording any revenue from the sale.