MetalCo provides steel building supplies to individuals and commercial customers such as construction companies or farms and ranches.  On May 4, 2022, Dream Builder, Inc., a custom home builder, placed an order for the structural steel to be delivered for a new custom home project.  The invoice price of $10,000 reflected/included a 5% discount that MetalCo routinely offered to commercial customers.  MetalCo offers cash/sales discounts of 2/10, n30 to all credit customers to encourage early payment of accounts.  MetalCo held the materials in inventory at a cost of $8,000.

 

On May 5, 2022, MetalCo delivered the steel to the Dream Builder job site.  A Dream Builder employee received the shipment and signed an invoice acknowledging receipt.  The MetalCo delivery driver retained the original invoice and provided a carbon copy to the Dream Builder employee.  The MetalCo delivery driver and the Dream Builder employee each gave their copies of the invoice to their respective company accountants who made the following entries on the May 5, 2022 invoice date. (Assume that both companies use the net method to account for sales and purchase discounts.)

 

MetalCo
May 5, 2022	Accounts receivable	9,800
	Sales		9,800
	Cost of goods sold	8,000
	Inventory		8,000
Dream Builder
May 5, 2022	Cost in excess of billings	9,800
	Accounts payable		9,800

 

Note: The account "cost in excess of billings" is similar to (though not exactly the same as) a work-in-process inventory account for construction companies.

 

1) On May 20, 2022, Dream Builder paid the MetalCo $10,000 for their account.

 

2) Does the first entry by MetalCo on May 5, 2022 qualify as useful financial?  Explain your answer by applying the Qualitative Characteristics of Useful Financial Information.