Question

On October 1, 20X1, Acme Fuel Co. sold 100,000 gallons of heating oil to Karn Co. at $3 per gallon. Fifty thousand gallons were delivered on December 15, 20X1, and the remaining 50,000 gallons were delivered on January 15, 20X2. Payment terms were: 50% due on October 1, 20X1, 25% due on first delivery, and the remaining 25% due on second delivery. What amount of revenue should Acme recognize from this sale during 20X1?

a. $75,000
b. $225,000
c. $150,000
d. $300,000

Answer 1

The correct answer is D.

Step-by-step explanation:

since in the initial operation it is registered

Accounts Receivable 300.0000

Revenues 300,000

Subsequent payments and deliveries are part of this specific operation. that is to say that upon receiving the first payment in October

Cash 150,000 (50% of 300.000)

accounts receivable 150.0000

then in december

Cash 75,000 (25% 300.000)

receivable accounts 75,000

At year-end x1 the company will reflect the total sale 300,000, accounts receivable by 75,000 (300,000 - 150,000 - 75,000)

and finally in January it will record the collection of the remainder as the previous seat.

With the information provided this is the correct answer since it is all about the same operation held in x1, regardless of the time of payments or deliveries.

ANOTHER ALTERNATIVE.

it is possible that the company can register a sale of 150,000 in x1 since only 50% of the merchandise was actually delivered. And the second payment of 25% can be considered sale or advance, depending on whether the company has available stock at the time of receiving it for future delivery.

But more information is needed to analyze these points.

Answer 2

b. $225,000

Step-by-step explanation:

As per US GAAP the revenue shall be recognized on accrual basis when it is certain that amount of revenue will be realized.

Though the payment terms provide that 50% due on agreement on October 1, 25% due on first delivery, and 25% due on second delivery.

Now here the agreement is specific to provide that the payment becomes due, that is the payment is not due up till the goods are delivered.

Therefore total payment = 100,000 gallons [tex]\times[tex] $3

=300,000

out of which 50% due on October 1

and out of remaining 50% first 25% is realized on first delivery.

Since first delivery took place in the year 20X1 itself.

Therefore revenue in 20X1 = $300,000 X 50% = $150,000

25% on first delivery = $300,000 X 25% = $75,000

Total revenue to be recognized in year 20X1 = $150,000 + $75,000 = $225,000