Asked by Tiana Hailey on Jul 03, 2024
Verified
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
Market Price Method
A valuation method for inventory or assets based on current market prices.
Net Income
Net income is the total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue.
Premium Wheat
High-quality wheat that meets specific standards and is sold at a price above regular or standard wheat.
- Analyze the impact of revenue recognition on financial statements and company performance.
- Recognize the criteria for revenue recognition under U.S. GAAP and IFRS.
Verified Answer
MS
Manasvi SharmaJul 09, 2024
Final Answer :
B
Explanation :
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.
Learning Objectives
- Analyze the impact of revenue recognition on financial statements and company performance.
- Recognize the criteria for revenue recognition under U.S. GAAP and IFRS.
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