A car manufacturer purchases $5,000 in tires (for cash) from a tire plant. When
ID: 2327950 • Letter: A
Question
A car manufacturer purchases $5,000 in tires (for cash) from a tire plant. When would a tire plant be able to record revenues from this sale?
As soon as the car manufacturer puts in the $5,000 order
As soon as those tires are delivered to the car manufacturer
Over time, as the car manufacturer continues to sell them
Only when the car manufacturer has used or sold all of those tires
a.As soon as the car manufacturer puts in the $5,000 order
b.As soon as those tires are delivered to the car manufacturer
c.Over time, as the car manufacturer continues to sell them
d.Only when the car manufacturer has used or sold all of those tires
Explanation / Answer
Correct Answer --- (B) As soon as those tires are delivered to the car manufacturer.
Explanation
Revenue on sale of goods is recorded when risk and reward associated with saleable goods are transferred to the buyer.
In the given situation risk and rewards transfer when tires are delivered to the Car manufacturer by the plant. It does not matter when car manufacturer sell his cars , Plant can record his income as soon as Goods are delivered.
The amount of Revenue recorded will be $5000.
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