The Sarver Farm has completed the fall harvest with 50,000 bushels of premium wheat. The wheat cost $75,000 from planting to harvest and the market price of the wheat on the day it is placed in the silo is $2.50 per bushel. Sarver sells 42,000 bushels in Year 1 and holds the remaining 8,000 until Year 2 when it sells for $3.00 per bushel.
-Using the market price (production)method,how much net income should Sarver recognize in Year 1?
A)$42,000
B)$50,000
C)$105,000
D)$125,000

Question

Quizplus · Accepted Answer

In Year 1, Sarver sells 42,000 bushels at $2.50 per bushel, totaling $105,000. The cost of producing 50,000 bushels is $75,000, so the cost per bushel is $1.50 ($75,000 / 50,000 bushels). The cost of goods sold for the 42,000 bushels is $63,000 (42,000 bushels * $1.50 per bushel). The net income for Year 1 is the sales revenue minus the cost of goods sold, which is $105,000 - $63,000 = $42,000.

The Sarver Farm Has Completed the Fall Harvest with 50,000