Question -
Revenue recognition - Below are several independent situations that occurred during 2014 for Lark Corporation:
Situation 1: Lark entered into a consignment arrangement with Sorel Corporation. Sorel will sell the goods and retain a commission.
Situation 2: Lark agreed to provide consulting services to Dodo Company, a small company with a questionable credit rating. The term of the contract is 3 years.
Situation 3: Lark sold equipment that includes a one-year warranty. The individual fair values of the equipment and warranty components are readily available.
Instructions - For each situation, explain how revenue should be recognized under the earnings approach. Be sure to include your reasoning.