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Teuvo Company entered into two contracts on the same date with Rundblad Corporation Teuvo has provided the following analysis of price and cost for the contracts

Teuvo Company entered into two contracts on the same date with Rundblad Corporation. Teuvo has provided the following analysis of price and cost for the contracts: ________________________Contract A Contract B Contract price......................$100,000.................$ 50,000 Cost of related goods................62,000...................54,000 Gross profit (loss) ..................$ 38,000.................($4,000) You inquired about why Teuvo would have agreed to make a sale at a loss. The company s controller indicated that the company felt the profit on Contract A was sufficient to justify selling at a loss on Contract B, and it viewed the two contracts, together, as sufficiently profitable. "We normally get $85,000 for the goods in Contract A and $60,000 for the goods in Contract B, so we were happy with the transactions, but this is how the customer wanted to structure them." Required: 1. Should the two contracts be combined for purposes of applying the 5-step revenue recognition model? 2. What amount of revenue should Teuvo associate with each of the contracts? 3. When should revenue be recognized on each of the contracts?

Apr 13 2020 View more View Less

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