Accounting Research

Big Joes Super Cars, Present Value (Revised Revenue Guidance) Big Joes 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 Joes record at the date of sale? What guidance should Big Joes apply to

the subsequent measurement of its receivable?

Next, reflect upon what measurement attribute is being used to record Big Joes 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 Excels

formula options: PMT and PV. Excel walks you through how to input numbers into each formula.