Since the services in the extended period are the same as those provided
in the original contract period, the services are not distinct; the
modification should be considered as part of the original contract.
(a)
January 2, 2020
(b)
December 31, 2020
Unearned Service Revenue…….…………………….……. 2,413
Service Revenue ($7,240* ÷ 3) ……………………… 2,413
PROBLEM 18.2
(a) The total revenue of $8,000 ($800 X 10) should be allocated to the two
performance obligations based on their relative standalone selling
prices. In this case, the standalone selling price of the grills is
considered $7,000 ($700 X 10) and the standalone selling price of the
Grill Masters makes the following entries:
April 20, 2020
Cash…………………………….…………………………………..
8,000
Unearned Service Revenue (Installation) ……..
1,412
Unearned Sales Revenue (Equipment) …………
6,588
1,412
6,588
(b)
April 17, 2020
Cash…………………………….…………………………………..
52,640
Sales Revenue [($200 X 280) X (1.0 – .06)] …….
52,640
Cost of Goods Sold ……………………….…………………
Inventory (280 X $160) ………………………………..
44,800
44,800
PROBLEM 18.3
PROBLEM 18.3 (Continued)
(c) 1. September 1, 2020
Accounts Receivable
2. September 1, 2020
Accounts Receivable
[(100 X $20) – (.03 X $20,000)] …………………….
Sales Revenue ……………………………………..
19,400
19,400
PROBLEM 18.3 (Continued)
(d) October 1, 2020
Notes Receivable ………………………………………………
Discount on Notes Receivable …………………….
5,324
1,324
Cost of Goods Sold …………………….…………………….
Grill Masters records revenue of $4,000 on October 1, 2020, which is
the value of consideration received, based on the present value of the
note. As a practical expedient, companies are not required to reflect
(a) The entry to record the sale is as follows:
June 1, 2020
Accounts Receivable …………………………………
70,000
NOTE TO INSTRUCTOR: The entries to record the sale and related cost of
goods sold at net amounts is as follows:
June 1, 2020
Accounts Receivable …………………………………
70,000
(b)
1.
May 1, 2020
2.
August 1, 2020
Cash [.80 X ($1,800 X 300)] ….………………..
432,000
PROBLEM 18.4
PROBLEM 18.4 (Continued)
(c) The introduction of bonus payment gives rise to a change in the
transaction price for the revenue arrangement, to include an
adjustment for management’s estimate of the amount of consideration
to which Economy will be entitled. With just two possible outcomes,
(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, 2020
PROBLEM 18.4 (Continued)
April 1, 2020
Accounts Receivable ($720,000 – $72,000) …
648,000
Unearned Sales Revenue....................................
72,000
(a) If sales with returns are recorded gross at point of sale, the following
entries are made.
January 1, 2020
Note to Instructor: Ritt makes the following entry if the sale is recorded net.
January 1, 2020
Estimated Inventory Returns
Notes Receivable (Mills)…...………………………..
48,000
(b)
August 10, 2020
Accounts Receivable (16 X $3,600*)…..…..…....
Sales Revenue…………………………….……..
57,600
57,600
Cost of Goods Sold ……………………….…………
PROBLEM 18.5
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 $45,200i 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, 2020
Cash (.20 X $45,200) ............................................ 9,040
PROBLEM 18.5 (Continued)
October 1, 2020
Cash (.80 X $45,200i) ………….……………………..
Accounts Receivable …………………….…..
36,160
36,160
December 31, 2020
Unearned Service Revenue (Maintenance
(d) Entries for Ritt
April 25, 2020
Inventory (Consignments) (100 X $800)............ 80,000
Finished Goods Inventory …………………. 80,000
June 30, 2020
PROBLEM 18.5 (Continued)
Entries for Farm Depot
April 25, 2020
No entry – Inventory continues to be controlled by Ritt.
(a) Warranty Performance Obligations
1. To transfer 70 specialty winches to customers with a total
transaction price of $21,000.
(b)
Cash ....................................................................... 29,000
Unearned Warranty Revenue
(20 X $400) .……………………………………. 8,000
(c) Because the points provide a material right to a customer that it would
not receive without entering into a contract, the points are a separate
performance obligation. Hale allocates the transaction price to the
product and the points on a relative standalone selling price basis as
follows.
PROBLEM 18.6
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.
(a) The transaction price is allocated to the products and loyalty points, as
follows:
Total
Standalone Percent Transaction Allocated
Selling Prices Allocated Price Amounts
(b) July 2, 2020
Cash…………………………….…………………………. 300,000
Unearned Sales Revenue………..……….. 60,000
PROBLEM 18.7
(a) Sales with financing
January 1, 2020
Notes Receivable ………………………………….….
5,000
Discount on Notes Receivable…………….
550
(b) Gift Cards
March 1, 2020
Cash…………………………….…………………………. 2,000
Unearned Sales Revenue (20 X $100)….. 2,000
March 31, 2020
PROBLEM 18.8
PROBLEM 18.8 (Continued)
June 30, 2020
Unearned Sales Revenue ………………………….
Sales Revenue (0.05 X 20 X $100) ……….
100
100
(a)
2020
2021
2022
Contract price
$900,000
$900,000
$900,000
Less estimated cost:
Costs to date
270,000
450,000
610,000
Estimated cost to complete
330,000
150,000
—
Estimated total cost
600,000
600,000
610,000
Less 2020 recognized
gross profit
135,000g
Gross profit in 2021
$ 90,000
2022:
Less 2020–2021
recognized gross profit
*PROBLEM 18.9
(a) Computation of Recognizable Profit/Loss
Percentage-of–Completion Method
2020
Costs to date (12/31/20) ………………..…………………..
$2,880,000
Estimated costs to complete …………….………………
3,520,000
(2,880,000)
Profit recognized in 2020…………………………………..
$ 900,000
2021
Costs to date (12/31/21)
($2,880,000 + $2,230,000)……………………………….
$5,110,000
70%
Costs incurred in 2021 ……………………..………………
Loss recognized in 2021………………..………………….
2022
Total revenue recognized……..……………………….….
$8,400,000
Total costs incurred…………..………………….………….
(7,300,000)
Deduct profit previously recognized
770,000
$ 330,000
*PROBLEM 18.10
PROBLEM 18.10 (Continued)
(b) No profit or loss recognized in 2020 and 2021
2022
Contract price ………………..……………………….……….
$8,400,000
(a) Computation of Recognizable Profit/Loss
Percentage-of–Completion Method
2020
Costs to date (12/31/20) .………..…………………….………..
$ 300,000
Estimated costs to complete …………………………………
1,200,000
Estimated total costs ……………………………….…….
$1,500,000
Revenue recognized ($1,900,000 X .20)……..……………
$ 380,000
2021
Costs to date (12/31/21) .………..…………………….………..
$1,200,000
Estimated costs to complete …………………………………
800,000
$ 100,000
$ 100,000
*PROBLEM 18.11