Question

Presented below are three revenue recognition situations.

a. Groupo sells goods to MTN for $908,000, payment due at delivery.
b. Groupo sells goods on account to Grifols for $797,000, payment due in 30 days.
c. Groupo sells goods to Magnus for $499,000, payment due in two installments, the first installment payable in 18 months and the second payment due 6 months later. The present value of the future payments is $462,200.

Required:
Indicate the transaction price for each of these transactions and when revenue will be recognized.

Answer 1

Groupo

Transaction Price When to recognize revenue

a. $908,000 Delivery Time

b. $797,000 30 days' time

c. $462,200 18 months and 24 months' time

Step-by-step explanation:

a) Data and Analysis:

a. $908,000 Delivery Time

b. $797,000 30 days' time

c. $462,200 18 months and 24 months' time

b) For the goods sold on installment sales, the payments are also deferred. Therefore, the seller does not recognize any gain until installments are received. Since installment sales encompass much longer time periods compared to credit sales, there are no discounts offered for early payments. The seller in an installment sales maintains an ownership interest in the goods sold until the buyer pays the balance due in full.