Project Paso Vineyards Processes Grapes into Champagne, Which It Bottles

question 80

Multiple Choice

Project Paso Vineyards processes grapes into champagne, which it bottles, corks, and places on shelves in underground caverns to age for several years.During the aging process, the winemakers hand-turn the bottles a quarter rotation every few months; also, at fixed intervals, they release yeast gases to preclude unwanted fermentation.Assume that Project Paso contracts to sell a quantity of champagne to a customer for €30 million.Under the terms of the contract, Project Paso will store the champagne in its caverns and perform all necessary functions associated with the aging process (for example, turning the bottles and releasing yeast gases) .The selling price includes the costs of producing the champagne and providing services during the aging process.The customer pays Project Paso €15 million at the beginning of the aging and storage process, and agrees to pay the remainder in five years upon delivery of the champagne.When should Project Paso Vineyards recognize revenue from selling the champagne?

• A)Project Paso Vineyards should delay revenue recognition until it delivers the champagne to the customer.
• B)Project Paso Vineyards should recognize revenue when it sells the champagne to the customer.
• C)Project Paso Vineyards should recognize one fifth of the revenue per year after it sells the champagne to the customer.
• D)Project Paso Vineyards should recognize one half of the revenue 2 1/2 years after it sells the champagne to the customer.
• E)none of the above.

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Definitions:

Opportunity Cost

The value of the next best alternative foregone as a result of making a decision.

Point E

typically used in the context of graphs, it can represent a specific equilibrium point or any designated point of interest.

Point D

In the context of economics or finance, this term is incomplete without additional context to define its specific relevance.

Opportunity Cost

Overlooking potential benefits from competing options when one is ultimately selected.