Question

Rhonda Company enters into a contract with Petersburg, Inc. on March 5. According to the contract, Rhonda is scheduled to deliver 100 units of Product 1 at a sales price of $60 per unit and 150 units of Product 2 to Petersburg, Inc. by June 30 at a sales price of $75 per unit. Rhonda agrees to deliver both Products 1 and 2 before being entitled to any payments. The following deliveries are made by Rhonda to Petersburg: On March 25, Rhonda delivers 100 units of Product 1.On June 20, Rhonda delivers 150 units of Product 2. What amount(s) relating to this contract should Rhonda report on its March 31 balance sheet?

Answer 1

Answer:

Rhonda should report Account Receivable of $6,000 in its balance sheet at 31st March.

Explanation:

According to commonly-applied accounting principles/standards; income should be recorded when they are earned ( in this case, when the product is delivered), rather than the cash payment is received.

By March 31st, Rhonda had already delivered all 100 units of Product 1 as agreed in the contract. As a result, they are eligible to record a revenue ( credit side) of $6,000 ( 100 units x $60 each).

As the cash receipt of $6,000 is not received, the Account Receivable should be recorded up by $6,000 to reflect the amount due from customers regarding the contract.

Revenue will be reported in income statement while Account Receivable will be reported in Balance Sheet. Thus, Rhonda should report Account Receivable of $6,000 in its balance sheet at 31st March.

Answer 2

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Explanation: