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The Fastbank Motorcycle Company (FMC) receives a $10 million order from dealers wanting to buy its...

The Fastbank Motorcycle Company (FMC) receives a $10 million order from dealers wanting to buy its most popular model on credit. No money changes hands. Due to excess demand, FMC cannot supply the motorcycles until next quarter. How will these events affect the balance sheet?

Multiple Choice

  • Accounts Receivable will increase by $10 million this quarter and Inventories will decrease next quarter.

  • Both Accounts Receivable and Shareholders' Equity will increase by $10 million this quarter.

  • Both Accounts Receivable and Accounts Payable will increase by $10 million this quarter.

  • These events will not impact the balance sheet this quarter.

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Answer #1

The correct answer is

Option D

These events will not impact the Balance Sheet this quarter.

Here is the reason

First, it is only an ORDER.
Second, NO MONEY exchanges hands.
Third, there is no movement of GOODS.

Neither the sale can be recognized, nor any advance is received.

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