Furniture Land Inc. is a producer and retailer of high-end custom-designed furniture. The company produces only to special order and requires a one-third down payment before any work begins. The customer is then required to pay one third at the time of delivery and the balance within 30 days after delivery.
It is now February 1, 2016, and Furniture Land has just accepted $3,000 as a down payment from H. Gooding, a wealthy stockbroker. Per the contract, Furniture Land is to deliver the custom furniture to Gooding’s residence by June 15, 2016. Gooding is an excellent customer and has always abided by the contract terms in the past. If Furniture Land cannot make the delivery by June 15, the contract terms state that Gooding has the option of can celling the sale and receiving a full reimbursement of any down payment.
Required:
As Furniture Land’s accountant, describe what revenue recognition policy the company should be using. Prepare all journal entries related to the sale in a manner that supports the revenue recognition policy you chose.