Reference no: EM133009648

Suppose that on January 1, 2019, Tesla Inc. decided to initiate a new sales program. The new program has characteristics that are similar (but not identical) to an earlier program in which vehicles were sold to leasing partners with a residual value guarantee. On January 1, 2019, Tesla sold its first vehicle under this new sales program.

The terms of the sale are:

1. On January 1, 2019, a customer entered into a sales contract to purchase a new vehicle. The sales price is $80,000. The customer borrowed $80,000 from a financial institution and agreed to make monthly payments for 36 months with a final payment of $50,000 on December 31, 2021. The customer paid $80,000 to Tesla and took delivery of the vehicle on January 1, 2019. The customer received title to the vehicle. The interest rate on the loan is 6%.
2. The contract provides that the customer can sell the vehicle to Tesla on December 31, 2021 for $50,000 cash.

Problem 1: Assume that on January 1, 2019 the expected market price of the vehicle on December 31, 2021 is $40,000. Calculate the revenue that Tesla will recognize on January 1, 2019.