Question

Which of the following statements is true if a by-product can be sold and a company credits "Other Income" by its sale?

a.No cost is assigned to the by-product, and it is not carried in inventory.
b.Any revenue received from the sale of the by-product is considered as an operating expense.
c.Any revenue received from the sale of the by-product is accounted as a reduction in the joint costs of the main products.
d.All the cost is generally assigned to the by-product using the net-realizable value method.

Answer 1

The true statement is that the revenue received from selling a by-product is generally accounted for as a reduction in the joint costs of the main products, not as other income or an operating expense.

Step-by-step explanation:

If a by-product can be sold and a company credits "Other Income" by its sale, the true statement is: Any revenue received from the sale of the by-product is accounted as a reduction in the joint costs of the main products. This practice is reflective of accounting standards which typically advise that by-product revenue be used to reduce the cost of the main product, rather than being recognized separately as other income or assigned its own production costs. This method emphasizes the incidental nature of the by-product in relation to the main product being produced.