Question

BE18.8 (LO 2) Presented below are three revenue recognition situations. a. Groupo sells goods to MTN for $1,000,000, payment due at delivery. b. Groupo sells goods on account to Grifols for $800,000, payment due in 30 days. c. Groupo sells goods to Magnus for $500,000, payment due in two installments, the first installment payable in 18 months and the second payment due 6 months later. The present value of the future payments is $464,000. Indicate the transaction price for each of these situations and when revenue will be recognized.

Answer 1

Answer:

a. Groupo sells goods to MTN for $1,000,000, payment due at delivery.

• transaction price = $1,000,000
• revenue recognized once the goods are delivered

No journal entry is required until goods are delivered and accepted.

b. Groupo sells goods on account to Grifols for $800,000, payment due in 30 days.

• transaction price = $800,000
• revenue recognized immediately since goods were already delivered

The journal entry:

Dr Accounts receivable 800,000

    Cr Sales revenue 800,000

c. Groupo sells goods to Magnus for $500,000, payment due in two installments, the first installment payable in 18 months and the second payment due 6 months later. The present value of the future payments is $464,000.

• transaction price = $480,000
• revenue recognized immediately since goods were already delivered

The journal entry:

Dr Notes receivable 500,000

    Cr Sales revenue 480,000

    Cr Discount on notes receivable 20,000