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PROBLEM 18.3 (Continued)
In this case, Grill Masters should reduce revenue recognized by $3,360
which is computed as the selling price of the grills $52,640 [($280 X
200) – ($56,000 X .06)], because it is probable (almost certain) that it
will provide the discounted price amounting to 6%.
(c) 1. September 1, 2019
Accounts Receivable
[$20,000 – (3% X $20,000)] .............................. 19,400
Accounts Receivable ................................. 19,400
2. September 1, 2019
Accounts Receivable
[$20,000 – (3% X $20,000)] .............................. 19,400
October 15, 2019
Cash ($1,000 X 20) .............................................. 20,000
PROBLEM 18.3 (Continued)
(d) October 1, 2019
Notes Receivable ...................................................... 4,000
Sales Revenue ($5,324 X .75132 [ PV i=10%, n=3]) ... 4,000
December 31, 2019
Grill Masters records revenue of $4,000 on October 1, 2019, which is
PROBLEM 18.4
(a) The entry to record the sale is as follows:
June 1, 2019
Accounts Receivable ....................................... 70,000
June 1, 2019
Accounts Receivable ....................................... 70,000
Allowance for Sales Returns and
(b) 1. May 1, 2019
2. August 1, 2019
Cash ............................................................ 432,000
PROBLEM 18.4 (Continued)
(c) The introduction of the bonus payment gives rise to a change in the
May 1, 2019
Cash (20% X $540,000) .................................... 108,000
Unearned Sales Revenue ........................ 108,000
July 1, 2019
(d) This is a bill and hold arrangement. It appears that the criteria for Epic
to have obtained control of the appliance bundles have been met:
(a) The reason for the bill-and-hold arrangement must be substantive.
Economy makes the following entries.
February 1, 2019
PROBLEM 18.4 (Continued)
April 1, 2019
Accounts Receivable ($720,000 – $72,000) ... 648,000
Unearned Sales Revenue.................................... 72,000
Sales Revenue ......................................... 720,000
PROBLEM 18.5
(a) If sales with returns are recorded gross at point of sale, the following
entries are made.
January 1, 2019
Notes Receivable ............................................. 48,000
Sales Revenue (40 X $1,200) ................... 48,000
January 1, 2019
Notes Receivable (Mills) ................................... 48,000
Allowance for Sales Returns and
(b) August 10, 2019
Cash (16 X $3,600*) .......................................... 57,600
Sales Revenue .......................................... 57,600
PROBLEM 18.5 (Continued)
(c) This revenue arrangement has 3 different performance obligations:
(1) the sale of the dryers, (2) installation, and (3) the maintenance plan.
The total revenue of $45,200 should be allocated to the three
performance obligations based on their relative standalone selling
price:
The allocation for a single contract is as follows.
Dryers $41,091 ($42,000 / $46,200) X $45,200
Ritt makes the following entries.
June 20, 2019
Cash (20% X $45,200) .......................................... 9,040
PROBLEM 18.5 (Continued)
October 1, 2019
Cash (80% X $45,200)...................................... 36,160
Accounts Receivable .............................. 36,160
Cost of Goods Sold ........................................ 33,000
Inventory (3 X $11,000) ......................... 33,000
December 31, 2019
(d) Entries for Ritt
April 25, 2019
Inventory (Consignments) (100 X $800)............ 80,000
Finished Goods Inventory ...................... 80,000
June 30, 2019
PROBLEM 18.5 (Continued)
Entries for Farm Depot April 25, 2019
No entry – Inventory continues to be controlled by Ritt.
Summary Entry for Consignment Sales
PROBLEM 18.6
(a) Warranty Performance Obligations
1. To transfer 70 specialty winches to customers with a total
transaction price of $21,000.
2. To provide extended warranty services for 20 winches after the
assurance warranty period with a value of $8,000 (20 X $400) for
2 years.
With respect to the bonus points program, Hale has a performance
obligation for:
(b)
Cash ....................................................................... 29,000
Unearned Warranty Revenue
(20 X $400) ............................................ 8,000
Sales Revenue ......................................... 21,000
To reduce inventory and recognize cost of goods sold:
Cost of Goods Sold ........................................ 16,000
Inventory .................................................. 16,000
Hale records Warranty Expense account over the first three years as
(c) Because the points provide a material right to a customer that it would
PROBLEM 18.6 (Continued)
The standalone selling price:
Purchased products: $100,000
To record sales of products subject to bonus points:
Cash ................................................................. 100,000
(d) Additional Sales Revenue from bonus point redemptions, if 4,500
points have been redeemed: (4,500 points ÷ 9,500 points X $8,676) =
$4,110.
PROBLEM 18.7
(a) The transaction price is allocated to the products and loyalty points, as
follows:
Total
Standalone Percent Transaction Allocated
Selling Prices Allocated Price Amounts
Product Purchases €300,000 80% €300,000 €240,000
(b) July 2, 2019
Cash ................................................................. 300,000
Unearned Sales Revenue……… ............. 60,000
Sales Revenue ……………………… ........ 240,000
PROBLEM 18.8
(a) Sales with financing
January 1, 2019
Notes Receivable ............................................ 4,450
Sales Revenue
($5,000 X .89000 [PV n=2; i=6%]) .................. 4,450
$4,717
(b) Gift Cards
March 1, 2019
Cash ................................................................. 2,000
Unearned Sales Revenue (20 X $100) ..... 2,000
March 31, 2019
April 30, 2019
Unearned Sales Revenue ............................... 600
PROBLEM 18.8 (Continued)
June 30, 2019
Unearned Sales Revenue ............................... 100
Sales Revenue (0.05 X 20 X $100) .......... 100
June 30, 2019
Unearned Sales Revenue ............................... 200
Sales Revenue (0.10 X 20 X $100) .......... 200
*PROBLEM 18.9
(a)
2019
2020
2021
Contract price
$900,000
$900,000
$900,000
Less estimated cost:
Costs to date
270,000
450,000
610,000
Gross profit recognized in—
2019:
$270,000
X $300,000 =
$135,000
$600,000
2020:
$450,000
X $300,000 =
$225,000
$600,000
(b) In 2019 and 2020, no gross profit would be recognized.
Total revenues .................................. $900,000
Total cost........................................... (610,000)
Gross profit recognized in 2021 ...... $290,000
.
*PROBLEM 18.10
(a) Computation of Recognizable Profit/Loss
Percentage-of-Completion Method
2019
Costs to date (12/31/19) ........................................... $2,880,000
Estimated costs to complete .................................. 3,520,000
Estimated total costs ....................................... $6,400,000
2020
Costs to date (12/31/20)
($2,880,000 + $2,230,000) ..................................... $5,110,000
Estimated costs to complete .................................. 2,190,000
Estimated total costs ....................................... $7,300,000
2021
Total revenue recognized ........................................ $8,400,000
Total costs incurred ................................................. (7,300,000)
PROBLEM 18.10 (Continued)
(b) No profit or loss recognized in 2019 and 2020
2021
Contract price .......................................................... $8,400,000
*PROBLEM 18.11
(a) Computation of Recognizable Profit/Loss
Percentage-of-Completion Method
2019
Costs to date (12/31/19) ................................................ $ 300,000
Estimated costs to complete ....................................... 1,200,000
Estimated total costs ............................................ $1,500,000
2020
Costs to date (12/31/20) ................................................ $1,200,000
Estimated costs to complete ....................................... 800,000
PROBLEM 18.11 (Continued)
2021
Costs to date (12/31/21) ........................................ $2,100,000
Estimated costs to complete ............................... 0
(b) No profit or loss in 2019
2020
Contract price ....................................................... $1,900,000
2021
Contract price ....................................................... $1,900,000
Costs incurred ...................................................... (2,100,000)
*PROBLEM 18.12
(a) A company recognizes revenue in the accounting period when a
performance obligation is satisfied—the revenue recognition principle.
A key element of the revenue recognition principle is that a company
Companies satisfy performance obligations either at a point in time or
over a period of time. Companies recognize revenue over a period of
time if one of the following two criteria is met.
1. The customer receives and consumes the benefits as the seller
performs.
2. The customer controls the asset as it is created or enhanced (e.g.,
In the case of a franchise, fees related to rights to use the intellectual
property generally are recognized at a point in time, usually when the
franchise begins operation. That is because at that time, the customer
controls the product or service when it has the ability to direct the use
