Identify the revenue recognition implications of transaction

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Reference no: EM131881153

Problem

On January 1, 2018, Madison Wholesalers (MW) enters into a contract with a customer to sell a product for $200,000. The product will be delivered in two years on December 31, 2019, but the customer pays for it today. MW is effectively a party receiving significant financing from the customer. Based on MW's credit characteristics, its interest rate is 5% annually.

A. Identify the revenue recognition implications of this transaction.

B. In addition to addressing the revenue implication, provide the journal entries that Madison Wholesalers will record at (1) January 1, 2018, (2) December 31, 2018, (3) December 31, 2019. Assume that the product is purchased on credit by MW on December 31, 2019 for $175,000.

Reference no: EM131881153

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