Question

Assume a contract for the sale of goods specifies that payment is to be made four months after delivery of a product. The seller is likely to do which of the following, with respect to the time value of money over the life of the contract?A) Recognize interest expense.B) Recognize additional cost of goods sold.C) Ignore the time value of money.D) Recognize interest revenue.

Answer 1

Answer:

correct option is D) Recognize interest revenue.

Explanation:

• Interest income is the income that a company receives from any investment or on its own debt and every penny taken on a logistic investment or loan is believed to pay some interest. Items sent to the buyer usually become debt that needs to be added without wires.
• so due to the position in the contract that the payment will be made four months later, the concept of time value of money is the basis of the interest income formula.
• Time value of money is a basic economic concept that involves the present money rather than the future money. This is true because the money you have at the moment can be invested and earned so that you can make a large amount of money in the future.
• If a party is asked to forfeit the time value of money in a business transaction, it must be compensated, hence the interest revenue.