Question

On September 25, year 8 Colson Corp. sold 200,000 widgetrons to Cavanaugh Corp at $5 per unit. Half of the units were delivered on November 15, year 8, and the remaining 100,000 units were delivered on January 20, year 9. At the time of sale Cavanaugh paid 40% of the contract price and agreed to pay the rest in equal installments on the two delivery dates. What amount of revenue should Colson recognize from this sale in year 8?a. $0b. $500,000c. $700,000d. $1,000,00011

Answer 1

Answer: The answer is b. $500,000

Step-by-step explanation:

Colson Corp. sold 200,000 widgetrons to Cavanaugh Corp. at $5 per unit, but Cavanaugh Corp. made an initial payment of 40% of the total value which is $400,000 calculated as follows:

200,000 x $5 = $1,000,000

40% of $1,000,000 = $400,000

Therefore, the bal on the sales contract will be:

$1,000,000 - $400,000 = $600,000

Cavanaugh Corp. agreed to pay the balance in equal installments on two different delivery dates.

The supposed value that should be recognised in the books for year 8 is $500,000 calculated as follows:

Goods delivered is 100,000

Unit price is $5

100,000 x $5 = $500,000

Therefore, $500,000 should be recognised in revenue for Colson.

Answer 2

Answer: b. $500,000

Step-by-step explanation:

Sold 200,000 widgetrons to Cavanaugh Corp at $5 per unit.

Paid initial 40% of the total value which is 200,000 x $5 = $1,000,000 x 40% = $400,000

Bal on the sales contract is $600,000

agreed to pay the rest in equal installments on the two delivery dates.

November 15, half of $600,00 was paid upon delivery which is $300,000

What value shd be recognised in the books for year 8

= value of goods delivered is 100,000 x $5 = $500,000

$500,000 would be recognised in the books of Coloson as sales for the year 8 and the balance of cash received will be posted to unearned income account for the year.