Question 1:
Sand Company, a publicly traded company, delivers twenty truckloads of sand to Gravel Company prior to December 31, 2011, the end of Sand's fiscal year. Sand normally enters into a written sales agreement with customers similar to Gravel Company. The written sales agreement must be signed by both companies in order to be binding. Although the purchasing department of Gravel has orally agreed to the sale, Gravel management cannot sign the agreement until it is approved by the legal department of Gravel. Personnel of the legal department of Gravel will be on vacation until January 5, 2012.
Can Sand recognize on its income statement for the year ending December 31, 2011, the revenue related to the twenty truckloads delivered to Gravel? Explain.
Question 2:
Bill's Club is a discount retailer subject to SEC regulation. Bill's Club charges its customers an annual membership fee. Although the fee is collected in advance, a customer can cancel and receive a full refund at any time during the year of membership.
Should Bill's Club recognize the entire initial membership fee at the beginning of the year or on a straight-line basis over the course of the membership year? Explain.
What journal entry should be made to record the initial receipt of the membership fees?