ABC recently signed a contract with XYZ. At the same time that ABC signed the...
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ABC recently signed a contract with XYZ. At the same time that ABC signed the contract it also delivered goods to XYZ, and thus it fulfilled all of its obligations per the contract. Per the contract, XYZ is required to pay $400 to ABC within 60 days. The $400 price that ABC is charging XYZ is much higher than usual because XYZ has substantial credit issues. In fact, ABC estimates the probability that XYZ will not pay the amount owed is 75 percent.
On the day it signed the contract, how should ABC account for the event?
Group of answer choices a. It should not recognize any revenue.
b. It should recognize revenue of $100, which equals the amount it expects to collect i.e., 25 percent of $400.
c. It should recognize revenue of $400 and bad debt expense of $300, which equals the amount that it does not expect to collect.
d. It should recognize revenue of $400.
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