Question

The following transactions occurred during 2021: 1. A television set is delivered to the customer in...

The following transactions occurred during 2021:

1. A television set is delivered to the customer in August. Six instalment payments of $ 200 per month begin the following January. Ignore interest considerations.

2. Goods are sold FOB shipping point. An item with a retail value of $ 10,000 is loaded onto the truck on May 31, but not unloaded until June 3 because the recipient delayed paying the freight bill until then. The vendor prepares and mails the invoice to the customer on June 10.

3. A computer network system and related cables are delivered to the customer's premises on March 31. Installation is completed by April 30, after which the system is ready for use. The vendor provides monthly support and upgrades for 4 months following the month of installation (through end of August). The value of the system and cables is $ 50,000, the value of the installation services is $ 22,000, and the value of the monthly support totals $ 6,000.

4. Goods are sold FOB destination. An order with an invoice total of $ 3,500 is loaded onto the truck January 31 and delivered on February 1.

5. A customer prepays for 10 oil changes for a total of $ 300. During December, two oil changes are completed for this customer.

Instructions

Identify in which month revenue should be recognized in each situation. If revenue should be recognized in more than one month, calculate the amounts that apply to each relevant month

Homework Answers

Answer #1
Sitautions Explanaton for Recognising Months for which recording made
1. A television set is delivered to the customer in August. Six instalment payments of $ 200 per month begin the following January. Ignore interest considerations. Revenue will be recognized in the month of August itself sa Title Risk is trnasfered in the month of August. Just because payment is pending will not hold the sale of the August month. Rzecord the sale against debtor. When payment received debtor will be reduced accordingly. In the Month of August . Debtors A/c Dr. To Sale A/c 1200 $. Secondly on receipt . Cash A/C Dr. To Debtors A/c 200 $ on mOnthly Basis should be set off.
2. Goods are sold FOB shipping point. An item with a retail value of $ 10,000 is loaded onto the truck on May 31, but not unloaded until June 3 because the recipient delayed paying the freight bill until then. The vendor prepares and mails the invoice to the customer on June 10. Here, Sale will be recognised in Books for the month of May itself, Because as per FOB shipping point Sale will happen once its shipped and all risk transfers in the hands of buyer. IN the Month of May. Sale is Debtors A/c Dr. To Sale A/c 10000 $.
3. A computer network system and related cables are delivered to the customer's premises on March 31. Installation is completed by April 30, after which the system is ready for use. The vendor provides monthly support and upgrades for 4 months following the month of installation (through end of August). The value of the system and cables is $ 50,000, the value of the installation services is $ 22,000, and the value of the monthly support totals $ 6,000. Here Basic Sale us recognised in the mmonth of April not in month of March, Because sam eisi ready for use after April 30, itself. Secondly, Support services will be booked furthr as on delivery basis. So, In April Sale will be booked for 50000 + 22000 and Monthly Support Sale will be booked for 6000$ on monthly basis. Sale in the month of April and Support Srvices as and when completed on monthly basis.
Debtors A/c Dr. Sale A/c Cr. 72000 $.
For Support Services.
Debtors A/c Support Services A/c Cr. 6000 $ ( Monthly Basis)
4. Goods are sold FOB destination. An order with an invoice total of $ 3,500 is loaded onto the truck January 31 and delivered on February 1. Here, under FOB Destination Pricniple, Sale should be marked when it reaches destination an Delivered, here as per the records same is received as on February 01, Hence February shall made record of Revenue. February Shall be record of Revenue. Debtors A/c Dr. Sale A/c Cr. 3500 $
5. A customer prepays for 10 oil changes for a total of $ 300. During December, two oil changes are completed for this customer. The Company will book Unearned Rvenue agaisnt the advances receeived. Secondly For the Month of december The revenue shall be recognised against unearned revenue to the extent of 2 Oil changes.   December will be month for recognizing revenue for the two oil changes. Advnace Cash A/c Dr. Unearned Revenue A/c Cr. 300 $. ( As and When Received)
On Delivering of Services: Unearned Revenue A/c Dr. Sale A/c Cr. 60 $. ( Booked in the Month of December)
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