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Chapter 18: 16BE (page 1033)

Travel Inc. sells tickets for a Caribbean cruise on ShipAway Cruise Lines to Carmel Company employees. The total cruise package price to Carmel Company employees is \(70,000. Travel Inc. receives a commission of 6% of the total price. Travel Inc. therefore remits \)65,800 to ShipAway. Prepare the journal entry to record the remittance and revenue recognized by Travel Inc. on this transaction.

Short Answer

Expert verified

Revenue recognized = $4,200

Amount Remitted = $65,800

Step by step solution

01

Meaning of Remittance

Aremittance is a monetary payment that is returned to or transferred to someone else. It is used for practically any form of payment, from bills to invoices, and it is typically used for international payments, such as when one side is in a different country.

02

Remittance and revenue recognized by Travel Inc.

Date

Particular

Debit ($)

Credit ($)

Cash a/c

70,000

Accounts payable a/c

70,000

Accounts payable a/c

70,000

Cash a/c

65,800

Sales revenue a/c

4,200

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Most popular questions from this chapter

(Determine Transaction Price) Blair Biotech enters into a licensing agreement with Pang Pharmaceutical for a drug under development. Blair will receive a payment of $10,000,000 if the drug receives regulatory approval. Based on prior experience in the drug-approval process, Blair determines it is 90% likely that the drug will gain approval and a 10% chance of denial.

Instructions

(a) Determine the transaction price of the arrangement for Blair Biotech.

(b) Assuming that regulatory approval was granted on December 20, 2017, and that Blair received the payment from Pang on January 15, 2018, prepare the journal entries for Blair. The license meets the criteria for point-in-time revenue recognition.

In September 2017, Gaertner Corp. commits to selling 150 of its iPhone-compatible docking stations to Better Buy Co. for \(15,000 (\)100 per product). The stations are delivered to Better Buy over the next 6 months. After 90 stations are delivered, the contract is modified and Gaertner promises to deliver an additional 45 products for an additional \(4,275 (\)95 per station). All sales are cash on delivery.

Instructions

(a) Prepare the journal entry for Gaertner for the sale of the first 90 stations. The cost of each station is $54.

(b) Prepare the journal entry for the sale of 10 more stations after the contract modification, assuming that the price for the additional stations reflects the standalone selling price at the time of the contract modification. In addition, the additional stations are distinct from the original products as Gaertner regularly sells the products separately.

(c) Prepare the journal entry for the sale of 10 more stations (as in (b)), assuming that the pricing for the additional products does not reflect the standalone selling price of the additional products and the prospective method is used.

(Recognition of Profit on Long-Term Contracts) During 2017, Nilsen Company started a construction job with a contract price of \(1,600,000. The job was completed in 2019. The following information is available.

2017 2018 2019

Costs incurred to date \)400,000 \(825,000 \)1,070,000

Estimated costs to complete 600,000 275,000 鈥�0鈥�

Billings to date 300,000 900,000 1,600,000

Collections to date 270,000 810,000 1,425,000

Instructions

(b) Prepare all necessary journal entries for 2018.

Explain a principal-agent relationship and its significance to revenue recognition.

On June 3, 2017, Hunt Company sold to Ann Mount merchandise having a sales price of \(8,000 (cost \)6,000) with terms of n/60, f.o.b. shipping point. Hunt estimates that merchandise with a sales value of \(800 will be returned. An invoice totaling \)120 was received by Mount on June 8 from Olympic Transport Service for the freight cost. Upon receipt of the goods, on June 8, Mount returned to Hunt \(300 of merchandise containing flaws. Hunt estimates the returned items are expected to be resold at a profit. The freight on the returned merchandise was \)24, paid by Hunt on June 8. On July 16, the company received a check for the balance due from Mount.

Instructions

Prepare journal entries for Hunt Company to record all the events in June and July.
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