Kringle Company has agreed to provide services to North to South Ltd in exchange for a piece of equipment and a cash payment.The equipment is currently recorded in North to South's books at $73,000 but independent assessors have set the fair value at $65,000.The cash payment of $20,000 will be received 12 months after completion of the services.Kringle should record revenue as:
A) $85,000.
B) $65,000 in the current period, $20,000 next period.
C) $93,000.
D) $85,000 but this figure must be discounted to allow for the 12 months until payment of the cash component.
E) $65,000 plus the present value of the $20,000 cash component.

Question

Quizplus · Accepted Answer

Kringle should record revenue as the fair value of the equipment ($65,000) plus the present value of the $20,000 cash payment, as the cash payment is deferred for 12 months and needs to be discounted to present value.

Kringle Company Has Agreed to Provide Services to North to South