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There is a question,could somebody explain for me? thank you.
In October 2006 Utland sold some $2,500. Their cost to Utland was $1,500. The transaction has been treated as a credit sales in Utland’s financial statements for the year ended 31 October2006. In November 2006 the customer accepted half of the goods and returned the other half in good condition.
what adjustments, if any, should be made to the financial statement?
A. Sales and receivables should be reduced by $2,500, and closing inventory increased by $1,500.
B. Sales and receivables should be reduced by $1,250, and closing inventory by $750.
C. Sales and receivables should be reduced by $2,500, with no adjustment to closing inventory.
D. no adjustment is necessary.
thank you!
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answer is D
year’s ended in oct
Half of the goods returned in novthank you, but the given answer is A.
but as you said, year’s ended in oct, so I think since the goods haven’t been accepted or returned by customer, the 2,500 can’t be treated as credit sale. so A is correct.
you agree with me?
thank you !- Topics: 0
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100% agree wid yhe…
Answer is A…- Topics: 0
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yhe better post more questions like this one,it helps alot
The answer is A. The sale shouldn’t be recorded in the year ended 31 Oct. as it didn’t justify the below condition for the sale of goods:
Revenue should be recognised when all of the following conditions have been satisfied:
(a) all the significant risks and rewards have been transferred to the buyer
(b) the seller retains no effective control over the goods sold
(c) the amount of revenue can be reliably measured
(d) the benefits to be derived from the transaction are likely to flow to the enterprise
(e) the costs incurred or to be incurred for the transaction can be reliably measured- Topics: 0
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i really love this question too. the right answer is A for sure. the goods went out and some came back so there should definitely be an adjustment.
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Utland treated the transaction as a credit sale. therefore, the effect will be:
Sales increased by $2,500 and
Inventory decreased by $1,500..The customer [/u]accepted half of the goods, (Meaning the goods were sent as consignment or for approval, and it should not be recorded as a credit sales in the first place).
Therefore adjustments are needed to reduce sales by $2,500 and increase Inventory by $1,500.
The answer is A.
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