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Chapter 18: 15BE (page 1033)

On June 1, 2017, Mills Company sells \(200,000 of shelving units to a local retailer, ShopBarb, which is planning to expand its stores in the area. Under the agreement, ShopBarb asks Mills to retain the shelving units at its factory until the new stores are ready for installation. Title passes to ShopBarb at the time the agreement is signed. The shelving units are delivered to the stores on September 1, 2017, and ShopBarb pays in full. Prepare the journal entries for this bill-and-hold arrangement (assuming that conditions for recognizing the sale as a bill-and-hold sale have been met) for Mills on June 1 and September 1, 2017. The cost of the shelving units to Mills is \)110,000.

Short Answer

Expert verified

Revenue recognized by Mills Company is $200,000.

Step by step solution

01

Meaning of Bill-and-Hold Arrangement

Transaction in which customer pay for goods and services before it is delivered to the customer is known asbill-and-hold arrangement. It is a type ofsale arrangement in which goods and services are not delivered to the customers and are invoiced by the seller for the goods and services.

02

Journal entries for bill-and-hold arrangement

Date

Particular

Debit ($)

Credit ($)

June 1, 2017

Accounts receivables a/c

200,000

Sales revenue a/c

200,000

June 1, 2017

Cost of goods sold a/c

110,000

Inventory a/c

110,000

September 1, 2017

Cash a/c

200,000

Accounts receivables a/c

200,000

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Most popular questions from this chapter

(Existence of a Contract) On May 1, 2017, Richardson Inc. entered into a contract to deliver one of its specialty mowers to Kickapoo Landscaping Co. The contract requires Kickapoo to pay the contract price of \(900 in advance on May 15, 2017. Kickapoo pays Richardson on May 15, 2017, and Richardson delivers the mower (with cost of \)575) on May 31, 2017.

Instructions

(a) Prepare the journal entry on May 1, 2017, for Richardson.

(b) Prepare the journal entry on May 15, 2017, for Richardson.

(c) Prepare the journal entry on May 31, 2017, for Richardson.

Question: P18-11 (LO5,6,7) EXCEL (Long-Term Contract with an Overall Loss) On July 1, 2017, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of \(1,900,000. On July 1, Torvill estimated that it would take between 2 and 3 years to complete the building. On December 31, 2019, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2017, 2018, and 2019.

At 12/31/17

At 12/31/18

At 12/31/19

Contract cost incurred to date

\)300,000

\(1,200,000

\)2,100,000

Estimated cost to complete contract

1,200,000

800,000

0

Billings to Gumbel

300,000

1,100,000

1,850,000

Instructions

Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2017, 2018, and 2019. (Ignore income taxes.)

What are the two types of losses that can become evident in accounting for long-term contracts? What is the nature of each type of loss? How is each type accounted for?

Shaw Company sells goods that cost \(300,000 to Ricard Company for \)410,000 on January 2, 2017. The sales price includes an installation fee, which has a standalone selling price of \(40,000. The standalone selling price of the goods is \)370,000. The installation is considered a separate performance obligation and is expected to take 6 months to complete.

Instructions

(a) Prepare the journal entries (if any) to record the sale on January 2, 2017.

Ismail Construction enters into a contract to design and build a hospital. Ismail is responsible for the overall management of the project and identifies various goods and services to be provided, including engineering, site clearance, foundation, procurement, construction of the structure, piping and wiring, installation of equipment, and finishing. Does Ismail have a single performance obligation to the customer in this revenue arrangement? Explain.
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