According to Note 2(e) to its 2009 financial statements, the revenue policy of Catalyst Paper Corporation, a leading North American newsprint and specialty paper products manufacturer, is as follows:
Revenue Recognition
The Company recognizes revenues upon shipment when persuasive evidence of an arrangement exists, prices are fixed or determinable, title of ownership has transferred to the customer and collection is reasonably assured. Sales are reported net of discounts, allowances and rebates.
Required:
a. Describe Catalyst Paper's revenue recognition policy and explain how it satisfies the revenue recognition criteria.
b. Explain what the term "F.O.B. shipping point" means. After reading the revenue recognition criteria stated by Catalyst Paper, do you think that it ships its products F.O.B. shipping point? Explain your reasoning.