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Chapter 18: Question E18-10 (page 1036)

(Allocate Transaction Price) Geraths Windows manufactures and sells custom storm windows for three-season porches. Geraths also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Geraths enters into the following contract on July 1, 2017, with a local homeowner. The customer purchases windows for a price of \(2,400 and chooses Geraths to do the installation. Geraths charges the same price for the windows irrespective of whether it does the installation or not. The installation service is estimated to have a standalone selling price of \)600. The customer pays Geraths \(2,000 (which equals the standalone selling price of the windows, which have a cost of \)1,100) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2017, Geraths completes installation on October 15, 2017, and the customer pays the balance due. Prepare the journal entries for Geraths in 2017. (Round amounts to nearest dollar.)

Short Answer

Expert verified

The total revenue earned by Geraths is $2,400.

Step by step solution

01

Meaning of Standalone Selling Price

Standalone selling price is the price at which a company will sell a product or serviceto a single consumer. This requires setting an adequate selling price for a product or service with some percentage of the profit.

02

Journal entries for Geraths in 2017

Date

Particular

Debit ($)

Credit ($)

July 1, 2017

No entry

September 1, 2017

Cash a/c

2,000

Accounts receivables a/c

400

To Unearned service revenue a/c

554

To Sales revenue a/c

1,846

September 1, 2017

Cost of goods sold a/c

1,100

To Inventory a/c

1,100

October 15, 2017

Cash a/c

400

To Accounts receivables a/c

400

October 15, 2017

Unearned service revenue a/c

554

To Service revenue a/c

554

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Most popular questions from this chapter

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.

Kristin Company sells 300 units of its products for \(20 each to Logan Inc. for cash. Kristin allows Logan to return any unused product within 30 days and receive a full refund. The cost of each product is \)12. To determine the transaction price, Kristin decides that the approach that is most predictive of the amount of consideration to which it will be entitled is the probability-weighted amount. Using the probability-weighted amount, Kristin estimates that (1) 10 products will be returned and (2) the returned products are expected to be resold at a profit. Indicate the amount of (a) net sales, (b) estimated liability for refunds, and (c) cost of goods sold that Kristen should report in its financial statements (assume that none of the products have been returned at the financial statement date).

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鈥檚 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.

On June 1, 2017, Economy sold 100 washer/dryer units without installation to Laplante Rentals for \)70,000. Laplante is a newer customer and is unsure how this product will work in its older rental units. Economy offers a 60-day return privilege and estimates, based on prior experience with sales on this product, that 4% of the units will be returned. Prepare the journal entries for the sale and related cost of goods sold on June 1, 2017.

What is the proper accounting for volume discounts on sales of products?

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.

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