Reference no: EM132930833
Question - Telco Inc. sells smartphones as well as data packages. On July 1, 2020, Telco sold John MacDonald a McIntosh 13 device with a two-year data package. John signed a contract the terms of which were: $95 down, 0% interest, and $95 per month on the 1st of the month for the next 23 months.
HST at 13% (the sale was made in Ontario where HST is 13%) is charged on all payments made under the deal.
The stand-alone monthly value of the data plan is $50. At the time of sale, Telco required John provide a credit card to make the $107.35 ($95 + 13% HST) down payment. The contract authorizes Telco Inc. to charge John's credit card $107.35 on the 1st of each of the following 23 months. A 24% interest rate would be appropriate for the credit risk Telco is assuming, since no credit checks are done at the time of sale.
Telco's cost of McIntosh 13 smart phones if $434. Telco's normal mark-up on the smartphones it sells is 100%.
Telco Inc. has a December 31 year end and prepares financial statements annually.
a) How much revenue will be recorded by Telco in 2020? Show all calculations and label all amounts.
b) What was Telco's gross profit on the sale of the McIntosh 13 device.