Assume that GM signs a contract to deliver 10 buses to the Tompkins Consolidated Area Transit (TCAT), which provides transit service throughout Tompkins County, for $4 million. Under the contract, TCAT makes a cash payment of $4 million to GM, and the 10 buses are shipped immediately from GM's existing inventory. At the same time, GM obtains the right to advertise its products on all of TCAT buses for six months, and makes a cash payment of $20,000 to GM for the advertising service. The fair value of the advertising service is $18,000.
Required:
Prepare the journal entries GM should record to account for the sale of the buses and the purchase of the advertisements. Indicate the amount of revenue GM should recognize for its sale of buses to TCAT.

Question

Quizplus · Accepted Answer

The Answer of Assume that GM signs a contract to deliver 10 buses to the Tompkins Consolidated Area Transit (TCAT), which provides transit service throughout Tompkins County, for $4 million. Under the contract, TCAT makes a cash payment of $4 million to GM, and the 10 buses are shipped immediately from GM's existing inventory. At the same time, GM obtains the right to advertise its products on all of TCAT buses for six months, and makes a cash payment of $20,000 to GM for the advertising service. The fair value of the advertising service is $18,000.
Required:
Prepare the journal entries GM should record to account for the sale of the buses and the purchase of the advertisements. Indicate the amount of revenue GM should recognize for its sale of buses to TCAT.

Assume That GM Signs a Contract to Deliver 10 Buses