Esther knows from her accounting classes that revenues must

Esther knows from her accounting classes that revenues must be recognized
only when they are earned. However, her boss wants to show that the theme park is doing
well in June and asks Esther to recognize a $9,000 revenue entry related to a group he has
booked for the next January. A contract has been signed with a provision that if the group
cancels for any reason, it will pay the theme park a $1,000 fee. Esther’s manager believes
that because of this clause, this group will definitely show up, so recognizing the revenue
earlier than January is of no consequence. What would you do if you were Esther?

Solution

Esther should not recognize revenue before January as the revenue is not earned. Penalty clause does not impact recognition.

Revenue can be recognized only when the group visits the theme park and pay as per the contract (no reasonable uncertainity of collection).