Log in
Accounting
1
answer
0
watching
159
views
10 Apr 2018

On March 15, 2016, New Age Company enters into a contract to build custom machinery for Michaels Company. The contract specified a delivery date of May 1. The machinery was shipped on May 15 but not delivered until May 31. The price of machinery is $125,000. How much and when should revenue from this contract be recorded?

1. The contract terms are Net30 FOB destination.

2. The contract terms are Net30 FOB shipping point.

Which terms would you prefer as a seller? Buyer? Please explain your answer.

Watch
1
answer
0
watching
159
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Casey Durgan
Casey DurganLv2
11 Apr 2018

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Travis Company has just completed a physical inventory count at year-end, December 31 of the current year. Only the items on the shelves, in storage, and in the receiving area were counted and costed on a FIFO basis. The inventory amounted to $66,500. During the audit, the independent CPA developed the following additional information: Goods costing $910 were being used by a customer on a trial basis and were excluded from the inventory count at December 31 of the current year. Goods in transit on December 31 of the current year, from a supplier, with terms FOB destination (explained in the “Required” section), cost $1,400. Because these goods had not yet arrived, they were excluded from the physical inventory count. On December 31 of the current year, goods in transit to customers, with terms FOB shipping point, amounted to $1,800 (expected delivery date January 10 of next year). Because the goods had been shipped, they were excluded from the physical inventory count. On December 28 of the current year, a customer purchased goods for cash amounting to $3,050 and left them “for pickup on January 3 of next year.” Travis Company had paid $1,720 for the goods and, because they were on hand, included the latter amount in the physical inventory count. On the date of the inventory count, the company received notice from a supplier that goods ordered earlier at a cost of $4,000 had been delivered to the transportation company on December 27 of the current year; the terms were FOB shipping point. Because the shipment had not arrived by December 31 of the current year, it was excluded from the physical inventory count. On December 31 current year, the company shipped $1,700 worth of goods to a customer, FOB destination. The goods are expected to arrive at their destination no earlier than January 8 of next year. Because the goods were not on hand, they were not included in the physical inventory count. One of the items sold by the company has such a low volume that management planned to drop it last year. To induce Travis Company to continue carrying the item, the manufacturer-supplier provided the item on a “consignment basis.” This means that the manufacturer-supplier retains ownership of the item, and Travis Company (the consignee) has no responsibility to pay for the items until they are sold to a customer. Each month, Travis Company sends a report to the manufacturer on the number sold and remits cash for the cost. At the end of December of the current year, Travis Company had seven of these items on hand; therefore, they were included in the physical inventory count at $780 each. Required: Assume that Travis’s accounting policy requires including in inventory all goods for which it has title. Note that the point where title (ownership) changes hands is determined by the shipping terms in the sales contract. When goods are shipped “FOB shipping point,” title changes hands at shipment and the buyer normally pays for shipping. When they are shipped “FOB destination,” title changes hands on delivery, and the seller normally pays for shipping. Begin with the $66,500 inventory amount and compute the correct amount for the ending inventory. (Deductible amounts should be entered with a minus sign. If no adjustment is necessary, enter a 0 in the cell.)

In class we discussed a number of situations where a sellercould recognize revenue before it has fully completed everyobligation under a contract. Which of the following items does NOTrepresent one of these situations?

Sale without a fixed price
Substantial completion of a contract (i.e., onlyinconsequential obligations remain)
A multiple-element arrangement
Percentage-of-completion accounting for a long-termcontract
Bill-and-hold sale
Sale with a return policy (provided certain conditions aremet)

Flag this Question

Question 21 pts

In class we discussed a couple situations where a seller wouldnot be able to recognize revenue even though it had shipped an itemto a customer. Which of the following items does NOT represent oneof these situations? (i.e., in which of these cases can revenue berecognized?)

Goods shipped but still in transit, with FOB shipping pointterms
Goods shipped but still in transit, with FOB destinationterms
Goods delivered on consignment
Goods delivered to a customer, where customer acceptance hasn’tyet occurred

Flag this Question

Question 31 pts

Seller’s sales contract specifies that legal title transfers tocustomers upon shipment from its facility. However, in the eventthat a product is lost or damaged in shipment, Seller has a pastpractice of supplying a replacement product at no charge to thecustomer. When should Seller recognize revenue?

When the product arrives at the customer’s facility
When the product is shipped from Seller’s facility
When Seller receives payment from the customer

Flag this Question

Question 41 pts

For which type of customer acceptance are revenues recognizednet (instead of gross)?

Acceptance based on subjective criteria
Acceptance based on customer-specified objective criteria
Acceptance based on seller-specified objective criteria

Flag this Question

Question 51 pts

In 2015, Constructor Corp. began a three-year, long-termconstruction project that qualified for percentage-of-completionaccounting. Constructor’s customer agreed to pay $300,000. By theend of 2015, Constructor had incurred costs of $60,000 and expectedto spend an additional $180,000 over the next two years. How muchrevenue will Constructor report on the project in its 2015 incomestatement?

Flag this Question

Question 61 pts

On December 12, 2014, Customer purchased two pieces of equipmentfor $105. Seller delivered Item A on December 13 but doesn’t expectto deliver Item B until the following February. Seller doesn’t selleither items separately (only as a pair), but Seller estimates theindividual selling prices to be $40 for item A and $80 for item B.Assuming this contract meets the criteria for separation as amultiple-element arrangement, how much revenue can Seller recognizein the fiscal year ending December 31, 2014?

Palisade Creek Co. is a merchandising business that uses theperpetual inventory system. The account balances for Palisade CreekCo. as of May 1, 2016 (unless otherwise indicated), are asfollows:

110 Cash $ 83,600
112 Accounts Receivable 233,900
115 Merchandise Inventory 624,400
116 Estimated Returns Inventory 28,000
117 Prepaid Insurance 16,800
118 Store Supplies 11,400
123 Store Equipment 569,500
124 Accumulated Depreciation-Store Equipment 56,700
210 Accounts Payable 96,600
211 Salaries Payable —
212 Customers Refunds Payable 50,000
310 Lynn Tolley, Capital, June 1, 2015 685,300
311 Lynn Tolley, Drawing 135,000
312 Income Summary —
410 Sales 5,069,000
510 Cost of Merchandise Sold 2,823,000
520 Sales Salaries Expense 664,800
521 Advertising Expense 281,000
522 Depreciation Expense —
523 Store Supplies Expense —
529 Miscellaneous Selling Expense 12,600
530 Office Salaries Expense 382,100
531 Rent Expense 83,700
532 Insurance Expense —
539 Miscellaneous Administrative Expense 7,800

During May, the last month of the fiscal year, the followingtransactions were completed:

Record the following transactions on page 20 of the journal.Refer to the Chart of Accounts for exact wording of accounttitles.

May 1 Paid rent for May, $5,000.
3 Purchased merchandise on account from Martin Co., terms 2/10,n/30, FOB shipping point, $36,000.
4 Paid freight on purchase of May 3, $600.
6 Sold merchandise on account to Korman Co., terms 2/10, n/30,FOB shipping point, $68,500. The cost of the merchandise sold was$41,000.
7 Received $22,300 cash from Halstad Co. on account.
10 Sold merchandise for cash, $54,000. The cost of the merchandisesold was $32,000.
13 Paid for merchandise purchased on May 3.
15 Paid advertising expense for last half of May, $11,000.
16 Received cash from sale of May 6.
19 Purchased merchandise for cash, $18,700.
19 Paid $33,450 to Buttons Co. on account.
20 Paid Korman Co. a cash refund of $13,230 for returnedmerchandise from sale of May 6. The invoice amount of the returnedmerchandise was $13,500 and the cost of the returned merchandisewas $8,000.

Record the following transactions on page 21 of the journal.Refer to the Chart of Accounts for exact wording of accounttitles.

May 20 Sold merchandise on account to Crescent Co., terms 1/10, n/30,FOB shipping point, $110,000. The cost of the merchandise sold was$70,000.
21 For the convenience of Crescent Co., paid freight on sale ofMay 20, $2,300.
21 Received $42,900 cash from Gee Co. on account.
21 Purchased merchandise on account from Osterman Co., terms 1/10,n/30, FOB destination, $88,000.
24 Returned of damaged merchandise purchased on May 21, receivinga credit memo from the seller for $5,000.
26 Refunded cash on sales made for cash, $7,500. The cost of themerchandise returned was $4,800.
28 Paid sales salaries of $56,000 and office salaries of$29,000.
29 Purchased store supplies for cash, $2,400.
30 Sold merchandise on account to Turner Co., terms 2/10, n/30,FOB shipping point, $78,750. The cost of the merchandise sold was$47,000.
30 Received cash from sale of May 20 plus freight paid on May21.
31 Paid for purchase of May 21, less return of May 24.

Related Documents

ACC 406 Lecture Notes - Lecture 5: Consignee, Consignor
graymule938
ACC 3000 Chapter Notes - Chapter 8: Perpetual Inventory, Consignee, Consignor
scarletsnail973
ACC 100 Chapter Notes - Chapter 5: Tim Hortons, Electricity Meter, Revenue Recognition
yellowwalrus278

Weekly leaderboard

Home
Homework Help 3,900,000
Accounting 580,000
Start filling in the gaps now
Log in