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Chapter 18: 19BE (page 1033)

On May 1, 2017, Mount Company enters into a contract to transfer a product to Eric Company on September 30, 2017. It is agreed that Eric will pay the full price of $25,000 in advance on June 15, 2017. Eric pays on June 15, 2017, and Mount delivers the product on September 30, 2017. Prepare the journal entries required for Mount in 2017.

Short Answer

Expert verified

Revenue = $25,000

Step by step solution

01

Meaning of Unearned Sales

A sum received by a corporation for a product or service that it has yet to give to a client is known as unearned sales. When a corporation takes upfront or payments made in advancebefore delivering any goods or services to customers, it is referred to as unearned income ordeferred revenue.

02

Journal entries required for Mount

Date

Particular

Debit ($)

Credit ($)

May 1, 2017

No entry

June 15, 2017

Cash a/c

25,000

Unearned sales revenue a/c

25,000

September 30, 2017

Unearned sales revenue a/c

25,000

Sales revenue a/c

25,000

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Most popular questions from this chapter

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.

On May 3, 2017, Eisler Company consigned 80 freezers, costing \(500 each, to Remmers Company. The cost of shipping the freezers amounted to \)840 and was paid by Eisler Company. On December 30, 2017, a report was received from the consignee, indicating that 40 freezers had been sold for \(750 each. Remittance was made by the consignee for the amount due after deducting a commission of 6%, advertising of \)200, and total installation costs of $320 on the freezers sold.

Instructions

(a) Compute the inventory value of the units unsold in the hands of the consignee.

(b) Compute the profit for the consignor for the units sold.

(c) Compute the amount of cash that will be remitted by the consignee.

Franchise Fee, Initial Down Payment) On January 1, 2017, Lesley Benjamin signed an agreement, covering 5 years, to operate as a franchisee of Campbell Inc. for an initial franchise fee of \(50,000. The amount of \)10,000 was paid when the agreement was signed, and the balance is payable in five annual payments of \(8,000 each, beginning January 1, 2018. The agreement provides that the down payment is nonrefundable and that no future services are required of the franchisor once the franchise commences operations on April 1, 2017. Lesley Benjamin鈥檚 credit rating indicates that she can borrow money at 11% for a loan of this type.

Instructions

(a) Prepare journal entries for Campbell for 2017-related revenue for this franchise arrangement.

(b) Prepare journal entries for Campbell for 2017-related revenue for this franchise arrangement, assuming that in addition to the franchise rights, Campbell also provides 1 year of operational consulting and training services, beginning on the signing date. These services have a value of \)3,600.

(c) Repeat the requirements for part (a), assuming that Campbell must provide services to Benjamin throughout the franchise period to maintain the franchise value.

(Recognition of Revenue on Long-Term Contract and Entries) Hamilton Construction Company uses the percentage-of-completion method of accounting. In 2017, Hamilton began work under contract #E2-D2, which provided for a contract price of \(2,200,000. Other details follow:

2017 2018

Costs incurred during the year \)640,000 $1,425,000

Estimated costs to complete, as of December 31 960,000 鈥�0鈥�

Billings during the year 420,000 1,680,000

Collections during the year 350,000 1,500,000

Instructions

(a) What portion of the total contract price would be recognized as revenue in 2017? In 2018?

(b) Assuming the same facts as those above except that Hamilton uses the completed-contract method of accounting, what portion of the total contract price would be recognized as revenue in 2018?

(c) Prepare a complete set of journal entries for 2017 (using the percentage-of-completion method).

Explain the accounting for sales with the right of return.
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