Presented below are five different situations. Provide an answer to each of these questions.

1. The Kawaski Jeep dealership sells both new and used Jeeps. Some of the Jeeps are used for demonstration purposes; after 6 months, these Jeeps are then sold as used vehicles. Should Kawaski Jeep record these sales of used Jeeps as revenue or as a gain?

2. One of the main indicators of whether control has passed to the customer is whether revenue has been earned. Is this statement correct?

3. One of the five steps in determining whether revenue should be recognized is whether the sale has been realized. Do you agree?

4. One of the criteria that contracts must meet to apply the revenue standard is that collectibility of the sales price must be reasonably possible. Is this correct?

5. Many believe the distinction between revenue and gains is important in the financial statements. Given that both revenues and gains increase net income, why is the distinction important?

Financial statements refer to the annual reports that contain one year’s financial transactions of a business concern. Such reports are drafted to ascertain the business'sfinancial health and economic positionand determine its growth.

Kawaski Jeep should record the amount received from the sale of old jeeps asrevenue because the company deals in both new and old jeeps. In addition, jeeps are the inventory for the company, notassets. Hence, it should be treated as revenue.

The given statement is correct. Revenues are considered to be earned when a seller of goods or services transfers thephysical possession or ownership in favor of a buyer irrespective of the receipt of payment. When sales take place, revenues are recognized, not when the amount is received.

The given statement is correct. Under thefive-step approach to revenue recognition, one of the stages is the realization of sales, which is a must to recognize the revenues in the books of accounts. In other terms, sales must be made to record the revenues in the books of a business concern.

The given statement is correct because it is a must before revenues are recognized in the books; the sales price should be fixed, and collectability of the same must be reasonably assured. It facilitates the seller and buyer to determine their assets and liabilities.

The distinction between revenues and gains is an important factor because it enables users and other stakeholders to identify revenue generation fromoperational and non-operational activitiesof the business concern.