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10 February, 14:17

Gupta Industries received a $200,000 prepayment from Packard Associates for the sale of new equipment. Gupta will bill Packard an additional $120,000 upon delivery of the equipment. Upon receipt of the $200,000 prepayment, how much should Gupta recognize for a contract asset, a contract liability, and accounts receivable?

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  1. 10 February, 16:19
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    Contract asset: $0

    Contract liability: $200,000

    Accounts receivable=$0

    Explanation:

    The following entry shall be recorded by the Gupta Industries in its accounts on the receipt of the prepayment amounting to $200,000 from the Packard Associates for the sale of the new equipment:

    Debt Credit

    Cash $200,000

    Contract liability $200,000

    So based on the above journal entry, the Gupta Industries shall recognise the following amounts in respect of contract asset, a contract liability, and accounts receivable

    Contract asset: $0

    Contract liability: $200,000

    Accounts receivable=$0
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