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Question: P18-8 (LO2,3) (Time Value, Gift Cards, Discounts) Presented below are two independent revenue arrangements for Colbert Company.

Instructions

Respond to the requirements related to each revenue arrangement.

(a) Colbert sells 3D printer systems. Recently, Colbert provided a special promotion of zero-interest financing for 2 years on any new 3D printer system. Assume that Colbert sells Lyle Cartright a 3D system, receiving a \(5,000 zero-interest bearing note on January 1, 2017. The cost of the 3D printer system is \)4,000. Colbert imputes a 6% interest rate on this zero-interest note transaction. Prepare the journal entry to record the sale on January 1, 2017, and compute the total amount of revenue to be recognized in 2017.

Step by step solution

01

Definition of Revenue Recognition

A principle that defines the conditions under which the company must recognize the revenue is revenue recognition. Such a principle is adopted under accrual accounting.

02

Journal entries

Date	Accounts and Explanation	Debit $	Credit $
1 Jan 2017	Note receivable	$5,000
	Discount on note		$550
	Sales revenue (PVF: 0.89)		$4,450
	Cost of goods sold	$4,000
	Inventory		$4,000
		$9,000	$9,000

Calculation of total revenue:

Particular	Amount $
Sales revenue	$4,450
Add: interest revenue	$267
Total revenue	$4,717

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