Question

Lewis Co. sold merchandise to AdCo for $48,000 and received $48,000 for that sale one month later. One week prior to receiving payment from AdCo, Lewis made a $10,000 payment to AdCo for advertising services that have a fair value of $7,000. After accounting for any necessary adjustments, how much revenue should Lewis Co. record for the merchandise sold to AdCo?

Answer 1

Answer:

$45,000 revenue to be recorded

Explanation:

If the seller is purchasing the goods and service from customer at fair value of those goods, so will account for that purchase as separate transaction.

Computing overpayment as:

Overpayment = Amount paid - Fair value

where

Amount paid is $10,000

Fair value is $7,000

So,

Overpayment - $10,000 - $7,000

Overpayment = $3,000

Now,

Computing the Net revenue which should be recorded as:

Net revenue = Sale amount - Overpayment

where

Sale amount is $48,000

Overpayment is $3,000

So,

Net revenue = $48,000 - $3,000

Net revenue = $45,000