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Chapter 18: Q2BE. (page 1032)

On May 10, 2017, Cosmo Co. enters into a contract to deliver a product to Greig Inc. on June 15, 2017. Greig agrees to pay the full contract price of \(2,000 on July 15, 2017. The cost of the goods is \)1,300. Cosmo delivers the product to Greig on June 15, 2017, and receives payment on July 15, 2017. Prepare the journal entries for Cosmo related to this contract. Either party may terminate the contract without compensation until one of the parties performs

Short Answer

Expert verified

The total of debit and credit sides is $5,300.

Step by step solution

01

Explanation of Termination of Contract

Termination of a contract involves termination of it by the parties before fulfillingtheir obligations. It is also clarified that before the parties have fulfilled all their respective contractual responsibilities, their responsibility to fulfill these commitments ceases.

02

Journal entries

There will be no entry on May 10, 2020, because neither party has complied under the contract, and either party may dissolve the contract without compensation.

Date

Particulars

Debit ($)

Credit ($)

May 10, 2020

No Entry

June 15, 2020

Account Receivable a/c Dr.

2,000

To Sales Revenue a/c

2,000

June 15, 2020

Cost of Goods Sold a/c Dr.

1,300

To Inventory a/c

1,300

June 15, 2020

Cash a/c Dr.

2,000

To Account Receivable a/c

2,000

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Most popular questions from this chapter

Refer to the information in Question 14. Assume that Allee has limited experience with a construction project on the same scale as the ten speedboats. How does this affect the accounting for the variable consideration?

(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

(a) Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.

(b) Prepare all necessary journal entries for 2018.

(c) Compute the amount of gross profit to be recognized each year, assuming the completed-contract method is used.

Describe the conditions when contract assets and liabilities are recognized and presented in financial statements.

What are the two basic methods of accounting for long-term construction contracts? Indicate the circumstances that determine when one or the other of these methods should be used.

Explain the current environment regarding revenue recognition.
See all solutions

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