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Chapter 18: 12BE (page 1033)

Manual Company sells goods to Nolan Company during 2017. It offers Nolan the following rebates based on total sales to Nolan. If total sales to Nolan are 10,000 units, it will grant a rebate of 2%. If it sells up to 20,000 units, it will grant a rebate of 4%. If it sells up to 30,000 units, it will grant a rebate of 6%. In the first quarter of the year, Manual sells 11,000 units to Nolan at a sales price of $110,000. Manual, based on past experience, has sold over 40,000 units to Nolan, and these sales normally take place in the third quarter of the year. What amount of revenue should Manual report for the sale of the 11,000 units in the first quarter of the year?

Short Answer

Expert verified

Sales Revenue is $105,600.

Step by step solution

01

Meaning of Sales Revenue

The amount received by a company through the sale of goods or supply of services is known as sales revenue. Its calculation requires price per unit to be multiplied by the number of units sold.

02

Sales revenue for the first quarter of the year

The amount of revenue recognized by Manual for the sale of the 11,000 units sold in the first quarter of the year is based on 4% of the rebate is as follows:

Salesrevenue=Sellingprice脳Discountrate=$110,000脳1-0.04=$110,000脳0.94=$105,600

Therefore, Sales revenue for the first quarter of the year is $105,600.

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Most popular questions from this chapter

Presented below are three revenue recognition situations.

(a) Groupo sells goods to MTN for \(1,000,000, payment due at delivery.

(b) Groupo sells goods on account to Grifols for \)800,000, payment due in 30 days.

(c) Groupo sells goods to Magnus for \(500,000, payment due in two installments, the first installment payable in 18 months and the second payment due 6 months later. The present value of the future payments is \)464,000.

Indicate the transaction price for each of these situations and when revenue will be recognized.

What is a performance obligation? Under what conditions does a performance obligation exist?

In September 2017, Gaertner Corp. commits to selling 150 of its iPhone-compatible docking stations to Better Buy Co. for \(15,000 (\)100 per product). The stations are delivered to Better Buy over the next 6 months. After 90 stations are delivered, the contract is modified and Gaertner promises to deliver an additional 45 products for an additional \(4,275 (\)95 per station). All sales are cash on delivery.

Instructions

(a) Prepare the journal entry for Gaertner for the sale of the first 90 stations. The cost of each station is $54.

(b) Prepare the journal entry for the sale of 10 more stations after the contract modification, assuming that the price for the additional stations reflects the standalone selling price at the time of the contract modification. In addition, the additional stations are distinct from the original products as Gaertner regularly sells the products separately.

(c) Prepare the journal entry for the sale of 10 more stations (as in (b)), assuming that the pricing for the additional products does not reflect the standalone selling price of the additional products and the prospective method is used.

Explain the accounting for sales with the right of return.

Describe the critical factor in evaluating whether a performance obligation is satisfied.
See all solutions

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