Question

Shiver Beaver Transmission Company enters into a contract with a major U.S. auto manufacturer to design and produce four-speed transmissions for small SUVs. Under the terms of the contract, Shiver Beaver will deliver the transmission immediately but the auto manufacturers will defer payment for eight years, the end of the We of the base warranty. The contract price is $3,700,000 and the interest rate incurred on similar financing agreements in the industry is 6% Read the requirements (Click the icon to view the Future Value of $1 table) (Click the icon to view the Future Value of an ordinary Annuity table) (Click the icon to view the Future Value of an Annuity Due table) Click the icon to view the Value of $1 table (Click the loon to view the Present Value of an ordinary Annuity table) Click the icon to the Present Value of an A y Due table) Requirementa. Is there a significant financing component in this contract? O A Asignificant financing component exists because the contract price is in excess of $1,000,000, creating a need to record interest O B. A significant financing component exists because the time period from payment to delivery is eight years and the interest rate is 6% O C. A significant financing component does not exist because the time period from payment to delivery is eight years and the interest rate is 0% OD. A significant financing component does not exist because a valid contract is signed and the interest rate is based on the industry rate atos

Answer 1

a) B. A significant financing component exist because the time period from payment to deliver is eight years and the interest rate is 6%.

b)Amount of sales revenue =. $3,700,000

Interest revenue = (3,700,000 * 6%)*8

= $177,608.