Brief Exercise 18-8 Presented below are three revenue recognition situations. (a

Question

Brief Exercise 18-8

Presented below are three revenue recognition situations.

(a)

Groupo sells goods to MTN for $1,058,000, payment due at delivery.

(b)

Groupo sells goods on account to Grifols for $804,000, payment due in 30 days.

(c)

Groupo sells goods to Magnus for $455,000, 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 $417,200.

Indicate the transaction price for each of these situations and when revenue will be recognized.

(a)

(b)

(c)

Transaction Price

$

$

$

Revenue will be recognized

At the point of sale
At delivery

At the point of sale
At the time of payment

At the point of sale
At the time of payment

Explanation / Answer

SOLUTION:

Transaction Price

Revenue will be recognized

a

1,058,000

At delivery

b

8,04,000

At the point of sale

c

417,200

At the point of sale

Details:

1) Groupo would recognize the revenue amount of $$1,058,000 at delivery as payment is due on delivery

2) Groupo would recognize the revenue amount of $804,000 at point of sale as goods have been sold on account

3) Groupo would recognize the revenue amount of $417,200 at point of sale at PV

Transaction Price

Revenue will be recognized

a

1,058,000

At delivery

b

8,04,000

At the point of sale

c

417,200

At the point of sale

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