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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
On January 1, 2019, Fulton Inc. enters into a contract with Gibson to deliver goods. Gibson pays $100,000 at the time the contract is signed, at which time the goods are transferred and Fulton’s performance obligation is complete. In addition, Gibson agrees to pay Fulton $100,000 on December 31, 2019, and December 31, 2020. If Fulton entered into a financing arrangement with Gibson it would charge an interest rate of 9%.
Required:
- 1. Determine the transaction price for the contract with Gibson.
- 2. Prepare the journal entries to record Fulton’s 2019 sales revenue and interest revenue.
- 3. Next Level What is the objective of adjusting the transaction price to reflect the time value of money?
1.
Ascertain the transaction price for the contract.
Transaction price:
Transaction price is the amount of consideration that is estimated by the company to be authorized in exchange, for delivering the promised goods and services to the customer. Transaction price is examined by the seller by analyzing the terms of the contract and the normally conducts of the business.
Compute the amount of transaction price:
2.
Journalize entries to record sales revenue and interest revenue.
3.
State the objective of adjusting the transaction price to reflect the time value of money.
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