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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

Question: P18-9 (LO5,6) EXCEL (Recognition of Profit on Long-Term Contract) Shanahan Construction Company has entered into a contract beginning January 1, 2017, to build a parking complex. It has been estimated that the complex will cost \(600,000 and will take 3 years to construct. The complex will be billed to the purchasing company at \)900,000. The following data pertain to the construction period.

2017

2018

2019

Cost to date

\(270,000

\)450,000

$610,000

Estimated cost to Complete

330,000

150,000

-

Progress billing to date

270,000

550,000

900,000

Cash collected to date

240,000

500,000

900,000

Instructions

Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period.

Tablet Tailors sells tablet PCs combined with Internet service, which permits the tablet to connect to the Internet anywhere and set up a Wi-Fi hot spot. It offers two bundles with the following terms.

1. Tablet Bundle A sells a tablet with 3 years of Internet service. The price for the tablet and a 3-year Internet connection service contract is \(500. The standalone selling price of the tablet is \)250 (the cost to Tablet Tailors is \(175). Tablet Tailors sells the Internet access service independently for an upfront payment of \)300. On January 2, 2017, Tablet Tailors signed 100 contracts, receiving a total of \(50,000 in cash.

2. Tablet Bundle B includes the tablet and Internet service plus a service plan for the tablet PC (for any repairs or upgrades to the tablet or the Internet connections) during the 3-year contract period. That product bundle sells for \)600. Tablet Tailors provides the 3-year tablet service plan as a separate product with a standalone selling price of \(150. Tablet Tailors signed 200 contracts for Tablet Bundle B on July 1, 2017, receiving a total of \)120,000 in cash.

Instructions

(a) Prepare any journal entries to record the revenue arrangement for Tablet Bundle A on January 2, 2017, and December 31, 2017.

Explain the importance of a contract in the revenue recognition process.

Nate Beggs signs a 1-year contract with BlueBox Video. The terms of the contract are that Nate is required to pay a nonrefundable initiation fee of \(100. No annual membership fee is charged in the first year. After the first year, membership can be renewed by paying an annual membership fee of \)5 per month. BlueBox determines that its customers, on average, renew their annual membership three times after the first year before terminating their membership. What amount of revenue should BlueBox recognize in its first year?

Question: (Allocate Transaction Price) Refer to the revenue arrangement in E18-13.

Instructions

Repeat requirements (a) and (b) assuming Crankshaft does not have market data with which to determine the standalone selling price of the installation services. As a result, an expected cost plus margin approach is used. The cost of installation is $36,000; Crankshaft prices these services with a 25% margin relative to cost.
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