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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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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. 1. Determine the transaction price for the contract with Gibson.
  2. 2. Prepare the journal entries to record Fulton’s 2019 sales revenue and interest revenue.
  3. 3. Next Level What is the objective of adjusting the transaction price to reflect the time value of money?

1.

To determine

Ascertain the transaction price for the contract.

Explanation

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:

Transactionprice=Paymentmadetocontract+Interestpayment=$100,000+$175,911.10(1)=$275,911

2.

To determine

Journalize entries to record sales revenue and interest revenue.

3.

To determine

State the objective of adjusting the transaction price to reflect the time value of money.

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