Question

On January 1, 2021, Hodge Beanery received $8,000 from the Kennedy Company in exchange for a coffee roaster that it will deliver to Kennedy on December 31, 2021. Assuming that Hodge views the time value of money to be a significant component of this transaction, and that a 9% interest rate is applicable, how much deferred revenue would Hodge recognize on January 1, 2021

Answer 1

the deferred revenue recognized is $7,339.45

Step-by-step explanation:

The computation of the deferred revenue is shown below:

Revenue is $8,000

And,

Present value of $1 at 9% for 1 year 1 ÷ 1.09 is 0.917

So

The Deferred revenue to be recorded is

= Earnings × PVF factor

= $8,000 * 0.917

= $7,339.45

hence, the deferred revenue recognized is $7,339.45

We simply applied the above formula and the same is to be considered