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Chapter 18: 9BE (page 1033)

On January 2, 2017, Adani Inc. sells goods to Geo Company in exchange for a zero-interest-bearing note with face value of \(11,000, with payment due in 12 months. The fair value of the goods at the date of sale is \)10,000 (cost $6,000). Prepare the journal entry to record this transaction on January 2, 2017. How much total revenue should be recognized in 2017?

Short Answer

Expert verified

Total revenue computed for Adani Inc. is $11,000.

Step by step solution

01

Meaning of Total Revenue

The value of total revenue of a company comes after multiplying the number of units sold and the price charged for one unit Ignoring a loss position in the business requires the company to earn total revenue more than the total cost.

02

Journal entries are as follows

Date

Particulars

Debit ($)

Credit ($)

January 2, 2017

Note receivables a/c Dr.

11,000

To Sales revenue a/c

10,000

To Discount on note receivables a/c

1,000

January 2, 2017

Cost of goods sold a/c Dr.

6,000

To Inventory a/c

6,000

The amount of total revenue is equal to the total amount of notes received by Adani Inc., which is $11,000.

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Most popular questions from this chapter

Celic Inc. manufactures and sells computers that include an assurance-type warranty for the first 90 days. Celic offers an optional extended coverage plan under which it will repair or replace any defective part for 3 years from the expiration of the assurance-type warranty. Because the optional extended coverage plan is sold separately, Celic determines that the 3 years of extended coverage represents a separate performance obligation. The total transaction price for the sale of a computer and the extended warranty is \(3,600 on October 1, 2017, and Celic determines the standalone selling price of each is \)3,200 and \(400, respectively. Further, Celic estimates, based on historical experience, it will incur \)200 in costs to repair defects that arise within the 90-day coverage period for the assurance-type warranty. The cost of the equipment is \(1,440. Assume that the \)200 in costs to repair defects in the computers occurred on October 25, 2017.

Instructions

(a) Prepare the journal entry(ies) to record the October transactions related to sale of the computers.

(b) Briefly describe the accounting for the service-type warranty after the 90-day assurance-type warranty period.

Fuhremann Co. is a full-service manufacturer of surveillance equipment. Customers can purchase any combination of equipment, installation services, and training as part of Fuhremann鈥檚 security services. Thus, each of these performance obligations is separate from individual standalone selling prices. Laplante Inc. purchased cameras, installation, and training at a total price of \(80,000. Estimated standalone selling prices of the equipment, installation, and training are \)90,000, \(7,000, and \)3,000, respectively. How should the transaction price be allocated to the equipment, installation, and training?

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When is revenue recognized in the following situations? (a) Revenue from selling products, (b) revenue from services performed, (c) revenue from permitting others to use company assets, and (d) revenue from disposing of assets other than products.

(Gross Profit on Uncompleted Contract) On April 1, 2017, Dougherty Inc. entered into a cost plus fixed fee contract to construct an electric generator for Altom Corporation. At the contract date, Dougherty estimated that it would take 2 years to complete the project at a cost of \(2,000,000. The fixed fee stipulated in the contract is \)450,000. Dougherty appropriately accounts for this contract under the percentage-of-completion method. During 2017, Dougherty incurred costs of \(800,000 related to the project. The estimated cost at December 31, 2017, to complete the contract is \)1,200,000. Altom was billed $600,000 under the contract.

Instructions

Prepare a schedule to compute the amount of gross profit to be recognized by Dougherty under the contract for the year ended December 31, 2017. Show supporting computations in good form.
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