The following transactions occurred during 2021: 1. A television set is delivered to the customer in...

The following transactions occurred during 2021:

1.	A television set is delivered to the customer in August. Six instalment payments of $200 per

month begin the following January. Ignore interest considerations.

2.	Goods are sold FOB shipping point. An item with a retail value of $10,000 is loaded onto the

truck on May 31, but not unloaded until June 3 because the recipient delayed paying the freight bill until then. The vendor prepares and mails the invoice to the customer on June 10.

3.	A computer network system and related cables are delivered to the customer's premises on

March 31. Installation is completed by April 30, after which the system is ready for use. The vendor provides monthly support and upgrades for 4 months following the month of installation (through end of August). The value of the system and cables is $50,000, the value of the installation services is $22,000, and the value of the monthly support totals $6,000.

4.	Goods are sold FOB destination. An order with an invoice total of $3,500 is loaded onto the

truck January 31 and delivered on February 1.

5.	A customer prepays for 10 oil changes for a total of $300. During December, two oil changes are

completed for this customer.

Instructions
Identify in which month revenue should be recognized in each situation. If revenue should be recognized in more than one month, calculate the amounts that apply to each relevant month

Solutions

Expert Solution

1.	A television set is delivered to the customer in August. Six instalment payments of $200 per month begin the following January. Ignore interest considerations

.Answer: Revenue of $1,200 to be recognised in August because the sale is made in August however the payment is received in installment. Revenue is recognised on accrual basis not cash basis.

2.	Goods are sold FOB shipping point. An item with a retail value of $10,000 is loaded onto the truck on May 31, but not unloaded until June 3 because the recipient delayed paying the freight bill until then. The vendor prepares and mails the invoice to the customer on June 10.

.Answer: Revenue of $10,000 to be recognised in May because the goods have been handled over to the transporter of customer on May 31. On FOB shipping point revenue is recognised when goods are passed on to customer carrier which in this case is May 31.

A computer network system and related cables are delivered to the customer's premises on March 31. Installation is completed by April 30, after which the system is ready for use. The vendor provides monthly support and upgrades for 4 months following the month of installation (through end of August). The value of the system and cables is $50,000, the value of the installation services is $22,000, and the value of the monthly support totals $6,000.

Answer: Revenue of computer network system and related cables to be recognised in March = $50,000. SInce goods are delivered to the customer in March, the risk and reward/control has transferred to customer in March and accordingly revenue is recognised.

Revenue of installation services to be recognised in April is $22,000. Revenue of installation services is recognised in the amount in which the installation services are given.

Revenue of monthly support and upgrades is to be recognised on monthly basis since that revenue accrues for the service provided in that month.

Revenue of monthly support and upgrades to be recognised in May is $6,000

Revenue of monthly support and upgrades to be recognised in June is $6,000

Revenue of monthly support and upgrades to be recognised in July is $6,000

Revenue of monthly support and upgrades to be recognised in August is $6,000

4.	Goods are sold FOB destination. An order with an invoice total of $3,500 is loaded onto the truck January 31 and delivered on February 1.

Answer: Revenue to be recognised in Februrary = $3,500 since its a FOB destination sale and it is the goods of the seller till the time is delivered to the customer i.e. in February

5.	A customer prepays for 10 oil changes for a total of $300. During December, two oil changes are completed for this customer.

Answer: Revenue to be recognised in December = $60 (i.e. 300/10*2). Revenue is recognised to the extent of services given that is two oil changes. Remaining amount is advance from customer and does not trigger revenue recognition.

ekkarill92 answered 1 year ago

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