Accounting Research
Big Joe’s Super Cars, Present Value (Revised Revenue Guidance) Big Joe’s Super Cars has just sold a luxury car to customer Tim. The purchase contract establishes a base price of $60,000, plus a contractual interest rate of 4%, payable in 60 monthly installments of $1,105. Control of the car transferred to Tim when Tim signed the contract and drove off the lot. If Tim had obtained separate financing (say, a bank loan) for the purchase of the car, his interest rate would have been 6%.
What amount of revenue should Big Joe’s record at the date of sale? What guidance should Big Joe’s apply to the subsequent measurement of its receivable?
Next, reflect upon what measurement attribute is being used to record Big Joe’s revenues. How does this approach achieve the objective of this measurement attribute?
Hint: This example will require you to perform computations. You might find it useful to use Microsoft Excel’s formula options: PMT and PV. Excel walks you through how to input numbers into each formula.