that it will be finished 1 month late 10 likely that it will be finished 2

That it will be finished 1 month late 10 likely that

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that it will be finished 1 month late, 10% likely that it will be finished 2 months late, and 10% likely that it will be finished 3 months late. What is the transaction price of the contract? Period Probability Fixed Revenue Variable Revenue On time 50% 500,000 50,000 * 100% = 50,000 1 month late 30% 500,000 50,000 * 75% = 37,500 Expected Revenue 550,000 * 50% = 275,000 537,500 * 30% = 161,250 2 month late 10% 500,000 50,000 * 50% = 25,000 525,000 * 10% = 52,500 3 month late 10% 500,000 50,000 * 25% = 12,500 512,500 * 10% = 51,250 540,000
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Time Value of Money Companies account for the time value of money if the contract involves a significant financing component Interest accrued on consideration to be paid over time Fair value determined either by measuring the consideration received or by discounting the payment Company reports as interest expense or interest revenue The sales revenue is equal to the present value of the payments received
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Knope Corp On January 1, 2017, Knope Corp sells $70,000 of Lil’ Sabastian statues (inventory) to Eagleton Corp for a 3-year, zero-interest bearing note with a face amount of $81,033.75. The cost of the Lil’ Sabastian statues to Knope Corp is $40,000. Use the effective interest rate method to calculate interest revenue. All adjusting journal entries are recorded on December 31. What are the journal entries recorded by Knope Corp on January 1 and December 31, 2017? To calculate the interest revenue, we need to find the imputed interest rate PV = PV Factor * FV 70,000 = PV Factor * 81,033.75 70,000 81,033.75 = .8638 1/1/17 Notes Receivable 70,000 Sale Revenue 70,000 Cost of Goods Sold 40,000 Inventory 40,000 31/12/17 Notes Receivable 3,500 Interest Revenue 3,500 Journal Entries Book Value * Imputed Interest Rate = Interest Revenue 70,000 5% 3,500 = *
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Non-Cash Consideration Sellers may receive consideration in the form of goods, services, or other non-cash consideration The seller generally recognizes revenue based on the fair market value of what is received
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The transaction price is allocated based on the relative stand alone selling price. If a discount is given, then the discount allocated proportionately to transaction price. If the standalone selling price is not available then the seller can estimate the standalone selling price with one of the following methods 1. Adjusted market assessment approach What are the seller’s competitors selling similar products for? 2. Expected cost plus a margin approach Forecasted costs plus a margin 3. Residual approach If the stand alone selling price is uncertain, then selling price is equal to the transaction price less the sum of the observable stand alone prices of other goods or services promised in the contract. Step 4: Allocate the transaction price to the separate performance obligation Listed in Order of Preference
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Swan Corp & Knope Corp On July 4, 2018, Swan Corp sells 6 wood chairs and 1 wood table to Knope Corp on account. Swan Corp sells the chairs for $600 each and the table for $1,500. Knope promises to pay Swan Corp on August 1, 2018. Swan Corp has always collected its accounts from Knope Corp.
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  • Winter '18
  • jane smith

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