Question

On September 25, 2018 Colson Corp. sold 200,000 widgetrons to Cavanaugh Corp at $5 per unit. Half of the units were delivered on November 15, 2018, and the remaining 100,000 units were delivered on January 20, 2019. At the time of sale Cavanaugh paid 40% of the contract price and agreed to pay the rest in equal installments on the two delivery dates. What amount of revenue should Colson recognize from this sale in 2018?
A. $0.
B. S1,000,000.
C. $500,000.
D. $700,0.

Answer 1

Correct options read:

A. $0

B. $500,000

C. $700,000

D. $1,000,000

Answer:

C. $700,000

Explanation:

Note only payments made on this sale that fall under the year 2018 is accounted for. Hence, we can make the following conclusions:

• Total payment due: $5 per unit x 200,000 = $1,000,000.
• Cavanaugh paid 40% of the contract price on September 25, 2018 = $400,000 (40% or 0.4 x  $1,000,000).

Also since half of the units were delivered on November 15, 2018, and he agreed to pay the rest in equal installments, we expect him to pay half the $600,000 left:

• units were delivered on November 15, 2018 = $300,000 paid.

Total payments in the year:

September 25, 2018; $400,000 + $300,000; November 15, 2018 = $700,000.