On January 1, Slowpay Company Makes a Verbal Commitment to Buy

question 24

Multiple Choice

On January 1, Slowpay Company makes a verbal commitment to buy a $150,000 piece of equipment. (On January 5 the contract is signed.) A $1,000 down payment is paid on January 5 and the machine is delivered on January 11. The balance owed is due on February 15, but Slowpay waits until March 10 to pay. When will the firm that sold the equipment to Slowpay recognize the sale as income under GAAP rules?

• A) On January 1, when the commitment is made.
• B) On January 5, when the contract is signed.
• C) On January 10, when Slowpay takes possession.
• D) On February 15, when the payment is due.
• E) On March 10, when payment is received.

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Definitions:

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