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Revenues are normally recognized when the company transfers goods or service in the amount of company expects to receive. The mount recorded is the cash-equivalent of sales price. The following transactions occurred in September. For each of the following transactions (independent scenarios), if revenue is to be recognized in September, indicate the revenue account title and amount. If revenue is not to be recognized in September, explain why. a. On September 1, ABC bank lends $3, 000 to the Company: the note principal and $240 interest ($3, 000 times 8%) annual interest are due in one year. Answer from the ABC bank’s standpoint. b. Dana Dealership, sells a Ford F-150 truck with a sticker price of $50, 000 for $46, 000 cash. c. A popular ski magazine receives a total of $14, 000 today from subscribers. The subscriptions each begin in the next fiscal year. Answer from the magazine’s company standpoint. Enter your answers below:
Expert Answer
a) From ABC bank’s point, the revenue is generated as the loan has been transferred and hence revenue would be recognized. However, since the loan is for 12 months, the interest recognized as earned revenue in September would for one month only.
Revenue Account affected: Interest Revenue
Amount of Revenue Earned in September: $3,000 x (8%/12) = $20
b) Dana dealership would recognize entire $46,000 in September as revenue is recognized for the amount, the item is sold.
Revenue Account affected: Sales Revenue
Amount of Revenue Earned in September: $46,000
c) For the magazine company, though they have received the subscription and amount both, they can’t recognize this revenue as “earned” because the subscription is for next year.
Revenue Account affected: Unearned Revenue
Amount of Revenue Earned in September: $0
