ABC Co sold merchandise to DEF Co for P120,000 and received P120,000 for that sale one month later. One week prior to receiving payment from DEF, ABC made a P20,000 payment to DEF for advertising services that have a fair value of P15,000. After accounting for any necessary adjustments, how much revenue should ABC record for the merchandise sold to DEF?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
1. ABC Co sold merchandise to DEF Co for P120,000 and received P120,000 for that sale one month later. One week prior to receiving payment from DEF, ABC made a P20,000 payment to DEF for advertising services that have a fair value of P15,000. After accounting for any necessary adjustments, how much revenue should ABC record for the merchandise sold to DEF? *
2. Guardians Fund Managers Company sells two licenses to XYZ Company on September 1, 20x6. First in exchange for P400,000, the company provides XYZ with a copy of its proprietary investment management software, which the company does not anticipate updating and which XYZ can permanently use. Second, in exchange for P360,000, the company provides XYZ with a three-year right to market the company’s financial advisory services under the name of Guardians, which the company advertises on an ongoing basis. How much revenue will the company recognize in 20x6 under this arrangement? *
3. A department store sells a television set that was a one-year warranty (quality-assurance) that covers any product defects. When customers purchase a TV set, they also have the option to purchase an extended three-year warranty that covers any breakage or maintenance. The extended warranty sells for the same amount regardless of whether it is purchased at the same time as the TV set or at some other time. How many performance obligations does the department store have? *
4.In 2018, SM Residences entered into a 3-year agreement in to construct a condominium project for a contract price of P10,000,000. SM recognizes construction contract under the percentage of completion method. For the year ended 2018, the following balances were found in SM’s books: Progress Billings P2,000,000;
5. Ayala Homes is a construction company who uses the percentage of completion method in accounting for its income. The company began constructing a building in the year 2019 for a contract price of P5,000,000. For the year ended 2019, the company billed its clients a total of 30% of the contract price. The books of the company show the following balances: Costs incurred to date P900,000; Construction income to date P300,000. How much is the company’s contract asset (liability) for the year 2019? *
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