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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

Describe the conditions when contract assets and liabilities are recognized and presented in financial statements.

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 the proper accounting for volume discounts on sales of products?

For what reasons should the percentage-of-completion method be used over the completed-contract method whenever possible?

Tablet Tailors sells tablet PCs combined with Internet service, which permits the tablet to connect to the Internet anywhere and set up a Wi-Fi hot spot. It offers two bundles with the following terms.

1. Tablet Bundle A sells a tablet with 3 years of Internet service. The price for the tablet and a 3-year Internet connection service contract is \(500. The standalone selling price of the tablet is \)250 (the cost to Tablet Tailors is \(175). Tablet Tailors sells the Internet access service independently for an upfront payment of \)300. On January 2, 2017, Tablet Tailors signed 100 contracts, receiving a total of \(50,000 in cash.

2. Tablet Bundle B includes the tablet and Internet service plus a service plan for the tablet PC (for any repairs or upgrades to the tablet or the Internet connections) during the 3-year contract period. That product bundle sells for \)600. Tablet Tailors provides the 3-year tablet service plan as a separate product with a standalone selling price of \(150. Tablet Tailors signed 200 contracts for Tablet Bundle B on July 1, 2017, receiving a total of \)120,000 in cash.

Instructions

(b) Prepare any journal entries to record the revenue arrangement for Tablet Bundle B on July 1, 2017, and December 31, 2017.

See all solutions

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