Hydra Aire, Inc., sells appliances to Seasons Department Store. A recent order requires Hydra Aire to manufacture and deliver 500 toasters at a price of $100 per unit. Hydra Aire's manufacturing costs are approximately $40 per unit. The following schedule summarizes the production and delivery record of Hydra:
REQUIRED:
a. Assuming that Hydra Aire recognizes revenue when the toasters are produced, how much revenue should be recognized in each of the three years?
b. Assuming that Hydra Aire recognizes revenue at delivery, how much revenue should be recognized in each of the three years?
c. Calculate net income for the three periods under each of the two assumptions above.
d. If Hydra Aire's management is paid an income-based bonus, which of the two assumptions would be preferred?