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P18-4 (LO2,3,4) (Allocate Transaction Price, Discounts, Time Value) Economy Appliance Co. manufactures low-price, no-frills appliances that are in great demand for rental units. Pricing and cost information on Economy’s main products are as follows

Item	Standalone Selling price (cost)
Refrigerator	\(500 (\)260)
Range	560 (275)
Stackable washer/dryer unit	700 (400)

Customers can contract to purchase either individually at the stated prices or a three-item bundle with a price of $1,800. The bundle price includes delivery and installation. The economy also provides installation (not a separate performance obligation).

Instructions

Respond to the requirements related to the following independent revenue arrangements for Economy Appliance Co.

Yellowcard Property Managers operate upscale student apartment buildings. On May 1, 2017, Economy signed a contract with Yellowcard for 300 appliance bundles to be delivered and installed in one of its new buildings. Yellowcard pays 20% cash at contract signing and will pay the balance upon installation no later than August 1, 2017. Prepare journal entries for Economy on (1) May 1, 2017, and (2) August 1, 2017, when all appliances are installed.

Step by step solution

01

Definition of Unearned Revenue

Advance revenue received from the customer for which the business entity will provide services and products in the future period is known as unearned revenue.

02

Journal entries for the installment of appliances

Date	Accounts and Explanation	Debit $	Credit $
1 May 2017	Cash (20% x $ 1800 x 300)	$108,000
	Unearned sales revenue		$108,000
1 Aug 2017	Cash	$432,000
	Unearned sales revenue	$108,000
	Sales revenue		$540,000

1 Aug 2017	Cost of goods sold (($260 + $275 + $400) x $300)	$280,500
	Inventory		$280,500
		$928,500	$928,500

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