Assume That GM Signs a Contract to Deliver 10 Buses

question 182

Essay

Assume that GM signs a contract to deliver 10 buses to the Tompkins Consolidated Area Transit (TCAT), which provides transit service throughout Tompkins County, for $4 million. Under the contract, TCAT makes a cash payment of $4 million to GM, and the 10 buses are shipped immediately from GM's existing inventory. At the same time, GM obtains the right to advertise its products on all of TCAT buses for six months, and makes a cash payment of $20,000 to GM for the advertising service. The fair value of the advertising service is $18,000.
Required:
Prepare the journal entries GM should record to account for the sale of the buses and the purchase of the advertisements. Indicate the amount of revenue GM should recognize for its sale of buses to TCAT.

Identify errors that can be detected by a trial balance and understand the limitations of a trial balance in error detection.

Understand the effects of transactions on unearned revenue and prepaid expenses and their presentation in financial statements.

Comprehend how rent receipts and payments affect the financial statements.

Recognize the relationship between journal entries, adjusting entries, and their impact on income statement and balance sheet accounts.

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Definitions:

Outbound Transportation Costs

Expenses related to the shipping of goods from a manufacturer or distributor to their final destination, typically a retailer or end customer.

X-y Grid

A graphical representation system using two axes (horizontal x-axis and vertical y-axis) to plot points, functions, or data, commonly used in mathematics and physics.

Super Assembly Facility

A super assembly facility is a high-capacity production site designed to efficiently assemble large quantities of products, often functioning as a central point in the supply chain for final product assembly.

Outbound Transportation Costs

Expenses associated with moving goods from the manufacturer or seller to their final destination, including shipping, freight, and handling fees.