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Eddi Din [679]
3 years ago
9

Gupta Industries received a $380,000 prepayment from Packard Associates for the sale of new equipment. Gupta will bill Packard a

n additional $108,000 upon delivery of the equipment. Upon receipt of the $380,000 prepayment, how much should Gupta recognize for a contract asset, a contract liability, and accounts receivable? A) Contract asset $380,000, contract liability: $0, accounts receivable, $108,000. B) Contract asset: $0: contract liability: $380,000, accounts receivable, $108,000 C) Contract asset: $380,000, contract liability: $0, accounts receivable, $0. D) Contract asset: $0, contract liability: $380,000, accounts receivable, $0.
Business
1 answer:
jenyasd209 [6]3 years ago
8 0

Answer: the correct answer is D) Contract asset: $0, contract liability: $380,000, accounts receivable, $0.

Explanation: Contract asset is $0 because the asset belongs to the company that has the equipment which is Packard Associates. Gupta has a liability of $380,000 because it has to deliver the equipment. Accounts receivable are $0 because the equipment hasn't been delivered yet.

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We are required to form the journal entry that are required by the facts presented in the case.

A journal is basically a detailed account which records all the financial transactions of a business to be used for the future reconciling of accounts.

The journal entry will be as under:

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Change from the fair value method to the equity method Assume an investor company acquires for $256,000 an 8% investment in the
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