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Chapter 18: 27Q (page 1031)
What is the nature of a sale on consignment?
When things are shipped on consignment from a manufacturer (or wholesaler) to a dealer (or retailer), the manufacturer retains title to the goods and bears the risk of sale.
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Tyler Financial Services performs bookkeeping and tax-reporting services to startup companies in the Oconomowoc area. On January 1, 2017, Tyler entered into a 3-year service contract with Walleye Tech. Walleye promises to pay \(10,000 at the beginning of each year, which at contract inception is the standalone selling price for these services. At the end of the second year, the contract is modified and the fee for the third year of services is reduced to \)8,000. In addition, Walleye agrees to pay an additional $20,000 at the beginning of the third year to cover the contract for 3 additional years (i.e., 4 years remain after the modification). The extended contract services are similar to those provided in the first 2 years of the contract.
Instructions
(a) Prepare the journal entries for Tyler in 2017 and 2018 related to this service contract.
(b) Prepare the journal entries for Tyler in 2019 related to the modified service contract, assuming a prospective approach.
(c) Repeat the requirements for part (b), assuming Tyler and Walleye agree on a revised set of services (fewer bookkeeping services but more tax services) in the extended contract period and the modification results in a separate performance obligation.
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
(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.
When is revenue recognized in the following situations? (a) Revenue from selling products, (b) revenue from services performed, (c) revenue from permitting others to use company assets, and (d) revenue from disposing of assets other than products.
Zagat Inc. enters into an agreement on March 1, 2017, to sell Werner Metal Company aluminum ingots. As part of the agreement, Zagat also agrees to repurchase the ingots on May 1, 2017, at the original sales price of $200,000 plus 2%.
Instructions
(a) Prepare Zagat鈥檚 journal entry necessary on March 1, 2017.
(b) Prepare Zagat鈥檚 journal entry for the repurchase of the ingots on May 1, 2017.
Talarczyk Company sold 10,000 Super-Spreaders on December 31, 2017, at a total price of \(1,000,000, with a warranty guarantee that the product was free of any defects. The cost of the spreaders sold is \)550,000. The assurance warranties extend for a 2-year period and are estimated to cost \(40,000. Talarczyk also sold extended warranties (service-type warranties) related to 2,000 spreaders for 2 years beyond the 2-year period for \)12,000. Given this information, determine the amounts to report for the following at December 31, 2017: sales revenue, warranty expense, unearned warranty revenue, warranty liability, and cash.
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