Question

For each of the following transactions, indicate the point at which (1) the initial transaction is recognized and (2) the financial statement element is realized: Initial transaction recognized Element realized by cash Inventory is purchased on credit on 1 August and is received on 14 August. It is paid for on 12 September. A customer buys a product on credit on 13 November and takes immediate delivery, promising to pay on 1 February of the following year. Expected warranty claims on products sold are accrued as the sales are made. Warranty claims are made at the end of the subsequent fiscal year. A cash payment is made to the customer at the beginning of the year following the claim. A customer orders a custom-built machine and pays when the order is placed on 20 February. The machine is delivered on 10 March The company uses a substantial amount of electricity. The electric utility issues bimonthly bills (i.e., one every two months) three weeks following the two- month usage period. A sale on credit is completed on 20 January, the product is delivered on 1 " February. Payment is received on 1 March.

From the dropdown list, I am given the following options:

• April 01
• August 14
• August 14 & November 13
• December 31
• December 31 & January 01
• Expense recognized when bill received and unbilled expense accrued
• February 01
• February 20
• February 20 & March 10
• January 01
• January 01 & December 31
• Liability recognized at time of sale
• March 01
• March 10
• November 13
• October 01
• September 12
• Upon payment of claim
• When each monthly bill is paid

Answer 1

ANSWER

AS per the given question,

	Initial Transaction Recognized	Financial Statement Element Recognized
1	1st Aug, 12th Sep	1st Aug,12th Sep
2	13th Nov,1st Feb	13th Nov , 31st Dec, 1st Feb
3	Accrual of Warranty Cost every month of sale, Claims made at year end crediting the customers, Payment at beginning of year	Accrual of Warranty Cost every month of sale, Claims made at year end crediting the customers, Payment at beginning of year
4	20th Feb	20th Feb
5	Every month end accrual for usage	Every month end for accrual for usage
6	20th Jan ,1st March	20th Jan ,1st March

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