Revenue Recognition at Completion of Production
Response to the following problem:
In 2010, the Sterling Farm Company produced 100,000 bushels of wheat at a cost of $2.00 per bushel. The company has a contract to deliver 80,000 bushels at $2.15 per bushel in 2011. Delivery costs are estimated to be $0.02 per bushel. For guaranteed price contracts, the company recognizes revenue at the completion of production; otherwise, it recognizes revenue at the time of delivery
Required
1. Prepare summary journal entries for 2010 and 2011.
2. At what value is the inventory of the company carried after the delivery of the 80,000 bushels? Why?