Question

AuctionCo sells used products collected from different suppliers. Assume a customer purchases a used bicycle through AuctionCo for $300. AuctionCo agrees to pay the supplier $200 for the bicycle. The bicycle will be shipped to the customer by the original bicycle owner.Required:Assume AuctionCo takes control of this used bicycle before the sale and pays $200 to the supplier. Under this assumption, how much revenue would AuctionCo recognize at the time of the sale to the customer?Assume AuctionCo never takes control of this used bicycle before the sale. Instead, the bicycle is shipped directly to the customer by the original bicycle owner, and then AuctionCo pays $200 to the supplier. Under this assumption, how much revenue would AuctionCo recognize at the time of the sale to the customer?Assume AuctionCo promises to pay $200 to the supplier regardless of whether the bicycle is sold, but the bicycle will continue to be shipped directly from the supplier to the customer. Under this assumption, how much revenue would AuctionCo recognize at the time of the sale to the customer?

Answer 1

1. $300
2. $100
3. $300

Explanation:

1. AuctionCo takes control of this used bicycle before the sale and pays $200 to the supplier.

Having taken control of the bicycle before the sale, the transaction will be treated as that of AuctionCo so the entire revenue will be theirs.

= $300

2. AuctionCo never took control.

Revenue will be the agency fee;

= Sales price - Supplier sales price

= 300 - 200

= $100

3. Assume AuctionCo promises to pay $200 to the supplier regardless of whether the bicycle is sold but the bicycle will continue to be shipped directly from the supplier to the customer.

= $300

Revenue is $300 because by being the ones to pay the supplier regardless of the occurrence of the transaction, they take control.