Toledo Farms produced 180 tonnes of wheat during the 2010 season.Toledo sells all of its wheat to Pool Elevators, which has agreed to purchase Toledo's entire production at the prevailing market price.Recent legislation assures that the market price will not fall below $132 per tonne during the next two years.Toledo's costs of selling and distributing the wheat are immaterial and can be reasonably estimated.Toledo reports its inventory at expected exit value.During 2010, Toledo sold and delivered to Pool Elevators 150 tonnes at the market price of $135 per tonne.Toledo sold the remaining 30 tonnes during 2011 at the market price of $138 per tonne.Under the earnings approach, what amount of revenue should Toledo recognize in 2010?

Question

Quizplus · Accepted Answer

Toledo sold 150 tonnes at the prevailing market price of $135 per tonne, resulting in revenue of 150 tonnes x $135 per tonne = $20,250. 
Toledo still has 30 tonnes of wheat remaining, which will be sold in 2011, when the market price is expected to be at least $132 per tonne. 
Therefore, Toledo should recognize revenue for the 30 tonnes at the expected exit value of $132 per tonne, which amounts to 30 tonnes x $132 per tonne = $3,960. 
Total revenue recognized under the earnings approach is $20,250 + $3,960 = $24,210.

Toledo Farms Produced 180 Tonnes of Wheat During the 2010