Revenue Recognition in a Zero-Interest Bearing Note Transaction

What is the amount of revenue to be recognized on the transaction between Ivanhoe & Sons and James Landscaping Service in 2021?

A. $10800

B. $98400

C. $87600

D. $87600 sales revenue and $6300 interest revenue

Answer:

The correct answer is C. $87600.

Revenue recognition in accounting is a crucial concept that determines when revenue should be recorded in financial statements. In the transaction between Ivanhoe & Sons and James Landscaping Service, the revenue to be recognized is $87600.

The revenue recognition for this transaction is based on the fair value of the equipment, which is $87600. Since the transaction involves a zero-interest bearing note, there is no explicit interest revenue to be recognized separately.

According to accounting principles, revenue should be recognized when it is earned and can be reliably measured. In this case, the revenue is considered earned at the time of the sale, which is on June 1, 2021. The fair value of the equipment, $87600, represents the amount that Ivanhoe & Sons can reasonably expect to receive in exchange for the equipment.

Therefore, the revenue to be recognized on this transaction in 2021 is $87600. This amount represents the value of the equipment sold to James Landscaping Service. It does not include any separate recognition of interest revenue since the note is zero-interest bearing.