Question

In: Accounting

On January 1, 2019, Fulton Inc. enters into a contract with Gibson to deliver goods. Gibson...

On January 1, 2019, Fulton Inc. enters into a contract with Gibson to deliver goods. Gibson pays $100,000 at the time the contract is signed, at which time the goods are transferred and Fulton’s performance obligation is complete. In addition, Gibson agrees to pay Fulton $100,000 on December 31, 2019, and December 31, 2020. If Fulton entered into a financing arrangement with Gibson it would charge an interest rate of 9%.

Required:

1. Determine the transaction price for the contract with Gibson.
2. Prepare the journal entries to record Fulton’s 2019 sales revenue and interest revenue.
3.

Next Level What is the objective of adjusting the transaction price to reflect the time value of money?

CHART OF ACCOUNTS
Fulton Inc.
General Ledger
ASSETS
111 Cash
121 Accounts Receivable
131 Notes Receivable
132 Discount on Notes Receivable
141 Inventory
152 Prepaid Insurance
181 Equipment
198 Accumulated Depreciation
LIABILITIES
211 Accounts Payable
231 Salaries Payable
250 Unearned Revenue
261 Income Taxes Payable
EQUITY
311 Common Stock
331 Retained Earnings
REVENUE
411 Sales Revenue
431 Interest Income
EXPENSES
500 Cost of Goods Sold
511 Insurance Expense
512 Utilities Expense
521 Salaries Expense
532 Bad Debt Expense
540 Interest Expense
541 Depreciation Expense
559 Miscellaneous Expenses
910 Income Tax Expense

1. Determine the transaction price for the contract with Gibson.

Additional Instructions

Transaction price

2. Prepare the journal entries to record Fulton’s sales revenue on January 1 and interest revenue on December 31.

General Journal Instructions

PAGE 1

GENERAL JOURNAL

DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT

1

2

3

4

5

6

7

8

Solutions

Expert Solution

Question No 1: Determine the transaction price for the contract with Gibson.

Answer: The transaction price for Gibson will be the total amount he has to pay to Fulton for delivery of Goods. In this case Gibson will make 3 payments to Fulton i.e

  1. 1st Payment of $1,00,000/- on 01/01/2019
  2. 2nd Payment of $1,00,000/- on 31/12/2019
  3. 3rd Payment of $1,00,000/- on 31/12/2020.

So the transaction price for Gibson will be $3,00,000/- by adding serial no 1,2 & 3.

Question No 2: Prepare the journal entries to record Fulton’s 2019 sales revenue and interest revenue.

Answer: The following journal entries will be recorded in the books of Fulton

GENERAL JOURNAL
DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT
1 01-01-2019 Accounts Receivable 121 300000
Sales Revenue 411 300000
2 31-12-2019 Accounts Receivable 121 9000
Interest Income 431 9000

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