Topic: REVENUE FROM CONTRACTS WITH CUSTOMERS Requirement: Compute for the sale revenue to be recognized from the transaction above. 7. An entity enters into a contract with a customer to sellequipment. Control of the equipment transfers to the customerwhen the contract is signed. The price stated in the contract isCU1 million plus a five per cent contractual rate of interest,payable in 60 monthly installments of P18,871.Case AIn evaluating the discount rate in the contract that contains asignificant financing component, the entity observes that the fiveper cent contractual rate of interest reflects the rate that would beused in a separate financing transaction between the entity and itscustomer at contract inception (i.e., the contractual rate of interestof fiveper cent reflects the credit characteristics of the customer).Requirement: Compute for the sale revenue to be recognized fromthe transaction above. Case BIn evaluating the discount rate in the contract that contains asignificant financing component, the entity observes that the fiveper cent contractual rate of interest is significantly lower than the12 cent interest rate that would be used in a separate financingpertransaction between the entity and itsinception (i.e., the contractual rate of interest of five per cent doesnot reflect the credit characteristics of the customer).customer at contractRequirement: Compute for the sale revenue to be recognized fromthe transaction above.

A contract is made when one party who is known as seller makes an offer and other party who is known…

Answered: Compute for the sale revenue to be…

Business

Accounting

Compute for the sale revenue to be recognized from the transaction above.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Topic: REVENUE FROM CONTRACTS WITH CUSTOMERS

Requirement: Compute for the sale revenue to be recognized from the transaction above.

7. An entity enters into a contract with a customer to sell
equipment. Control of the equipment transfers to the customer
when the contract is signed. The price stated in the contract is
CU1 million plus a five per cent contractual rate of interest,
payable in 60 monthly installments of P18,871.
Case A
In evaluating the discount rate in the contract that contains a
significant financing component, the entity observes that the five
per cent contractual rate of interest reflects the rate that would be
used in a separate financing transaction between the entity and its
customer at contract inception (i.e., the contractual rate of interest
of five
per cent reflects the credit characteristics of the customer).
Requirement: Compute for the sale revenue to be recognized from
the transaction above.

Case B
In evaluating the discount rate in the contract that contains a
significant financing component, the entity observes that the five
per cent contractual rate of interest is significantly lower than the
12 cent interest rate that would be used in a separate financing
per
transaction between the entity and its
inception (i.e., the contractual rate of interest of five per cent does
not reflect the credit characteristics of the customer).
customer at contract
Requirement: Compute for the sale revenue to be recognized from
the transaction above.

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