Question

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

Answer 1

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