Question

In the month of March, the Baldwin Corporation received and delivered orders of 138,000 units at a price of $15.00 for revenue of $2.07 mil for their product Beetle. Balwin uses the accrual method of accounting and offers 30 day credit terms. By the end of May baldwin had collected payments of $2.07 mil for the March deliveries. How much of the collected $2.07 mil should Baldwin show on the March 31st income statement and how much on the May 31st income statement? Select 1

$0.683 mil in March; $1.387 mil in May

$2.07 mil in March; $ 0 on May

$1.035 in March; $1.035 in May

$0 in March; 2.07 mil in May

Answer 1

At the end of March, Baldwin corporation would have accounted the entire sales as they follow accrual system of accounting. Since the company offers 30 day credit period, its assumed all sales are on credit. The consolidated entry would be

Debtors accounts Debit $ 2,070,000

Sales account credit $ 2,070,000

As per the information provided, the company has received $2.07 million by the end of may. Since there is a credit period of 30 days, its assumed that no payment has been received in March and hence nothing should be shown in March. Its a post balance sheet event that does not have any impact as on March.

By the end of may, the company received the entire payment and hence in the income statement of May, the entire $2.07 million should be shown. Collection entry should be passed which will remove the debtors , however will not impact the profit / loss.