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Intermediate Accounting (Kieso)
Found in: Page 1032

Short Answer

Presented below are three revenue recognition situations.

(a) Groupo sells goods to MTN for $1,000,000, payment due at delivery.

(b) Groupo sells goods on account to Grifols for $800,000, payment due in 30 days.

(c) Groupo sells goods to Magnus for $500,000, payment due in two installments, the first installment payable in 18 months and the second payment due 6 months later. The present value of the future payments is $464,000.

Indicate the transaction price for each of these situations and when revenue will be recognized.

As per the concept of revenue recognition, revenue will be recognized at the time of sale or delivery of goods and services.

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Step by Step Solution

Meaning of Revenue Recognition

The concept of revenue recognition defines the circumstances under which revenue is recognized. A GAAP that establishes and accounts for the conditions under which revenue is recognized is known as revenue recognition.

Transaction price and time to recognize revenue for each situation 

(a) At delivery, Groupo will earn $1,000,000 in revenue.

(b) At the moment of sale, Groupo will record $800,000 in revenue.

(c) Groupo will record $464,000 in revenue at the moment of sale and interest revenue throughout the payment period.

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