ex114)Hogan Farms produced 1,600,000 pounds of cotton during the 2015 season. Ho

Question

ex114)Hogan Farms produced 1,600,000 pounds of cotton during the 2015 season. Hogan sells all of its cotton to Ott Co., which has agreed to purchase Hogan's entire production at the prevailing market price. Recent legislation assures that the market price will not fall below $.70 per pound during the next two years. Hogan's costs of selling and distributing the cotton are immaterial and can be reasonably estimated. Hogan reports its inventory at expected exit value. During 2015, Hogan sold and delivered to Ott 1,200,000 pounds at the market price of $.70. Hogan sold the remaining 400,000 pounds during 2016 at the market price of $.72. What amount of revenue should Hogan recognize in 2015?

Explanation / Answer

Answer is Units produced 1,600,000*.70 =1120000 to be recognized as revenue

Agricultural products (and precious metals) may be stated at above cost by using net
selling price less cost of disposal because:
1. There is a ready market for such items (i.e., $.70 price legislation).
2. There is unit-interchangeability (i.e., cotton is cotton).

in essence, revenue is recognized at time of production and not at the time of sale

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.