Eugene Co. has inventory it purchased for $6,000. It sells the inventory to a customer for $10,000, including installation. Installation sold separately costs $1,000 and the inventory sold separately costs $10,000. What amount of Sales Revenue is recognized by Eugene when delivery of the inventory has been made to the customer, but the installation has not been completed?

Answer: $9090.91

Explanation:

Guven the following;

Sales price of Inventory = $10,000

Installation cost = $1000

Inventory and installation = $10,000

Calculate : Amount of sales revenue recognized by Eugene when delivery of inventory has been made to customer but installation hasn't been completed.

That is, what is the sales price of the inventory alone at that price without adding the installation fee.

Total cost price if inventory and installation were charged separately

Price = $ (10,000 + 1,000) = $11,000

Sale revenue = (price when sold together) : (price when sold separately) * sales price of inventory

Sales revenue = ($10,000 : $11,000) * $10,000 = 0.909090 * $10,000 = 9090.91

The necessary entries would be:

Dr Accounts receivable $11,000

Cr Sales revenue $10,000

Cr Deferred revenue $,1000

Explanation:

Revenue should be recognized in the books of account where the selling party has performed its obligation of delivering goods or rendering services as contained in the sales contract.

This contract contains provision of goods - inventory that have been delivered and rendering of services-installation that is in progress, as a result the revenue relating to the former is due to be recognized now while the later would be recognized when is installation is concluded.