Instructions On January 1, 2017, Fulton Inc. enters into a contract with Gibson
ID: 2588856 • Letter: I
Question
Instructions On January 1, 2017, 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, 2017, and December 31, 2018. If Fulton entered into a financing arrangement with Gibson it would charge an interest rate of 9% Required: 1. Determine the transaction price for the contract with Gibson. 2. Prepare the journal entries to record Fulton's 2017 sales revenue and interest revenue. 3. Next Level What is the objective of adjusting the transaction price to reflect the time value of money?Explanation / Answer
Transaction price is the total present value of all future receipts:
Transaction price= 275900
Interest for 2017= Note receivable amount * 9%= 2169
Date Amount Present value factor Present value Jan.1 2017 100000 1 100000 Dec.31 2017 100000 0.917 91700 [1/(1+0.09) ] Dec.31 2018 100000 0.842 84200 [1/(1+0.09)^2 ] Total present value 275900