Reference no: EM132490401

Question - Bill and Hold

Wood-Made Company is involved in the design, manufacture, and installation of various types of wood products for large construction projects. Wood-Made recently completed a large contract for Stadium Ltd., which consisted of building 35 different types of concession counters for a new soccer arena under construction. The terms of the contract are that upon completion of the counters, Stadium would pay £2,500,000. Unfortunately, due to the depressed economy, the completion of the new soccer arena is now delayed. Stadium has therefore asked Wood-Made to hold the counters for 2 months at its manufacturing plant until the arena is completed. Stadium acknowledges in writing that it ordered the counters and that they now have ownership. The time that Wood-Made Company must hold the counters is totally dependent on when the arena is completed. Because Wood-Made has not received additional progress payments for the counters due to the delay, Stadium has provided a deposit of £400,000.

Instructions -

a. Explain this type of revenue recognition transaction.

b. What factors should be considered in determining when to recognize revenue in this transaction?

c. Prepare the journal entry(ies) that Wood-Made should make, assuming it signed a valid sales contract to sell the counters and received at the time the £300,000 deposit.