EXERCISE 18.14 (25–30 minutes)
(a) The total revenue of $1,000,000 should be allocated to the two
performance obligations based on their standalone selling prices. In
this case, the standalone selling price of the equipment should be
(b) Crankshaft makes the following entries:
June 1, 2020
Accounts Receivable……….………………………. 1,000,000
Unearned Service
EXERCISE 18.15 (10–15 minutes)
(a) The separate performance obligations are the oven, installation, and
maintenance service, since each item has standalone selling price to
EXERCISE 18.16 (20–25 minutes)
(a) 1. The journal entries to record sales and related cost of goods sold
are as follows:
2. The journal entries to record sales returns are as follows:
March 25, 2020
EXERCISE 18.16 (continued)
3. The adjusting journal entries required to record estimated
remaining returns are as follows:
(b) Financial Statement Presentation
Income Statement (partial)
For the quarter ended March 31, 2020
Cost of goods sold ($6,000 − $180 − $120)
NOTE TO INSTRUCTOR: Some companies may choose
to record sales
revenue net. If sales are recorded net, the entries are as follows:
(a)
March 10, 2020
EXERCISE 18.16 (continued)
The journal entries to record the return are as follows:
March 25, 2020
Allowance for Sales Returns and
(b) Financial Statement Presentation
Income Statement (partial)
For the quarter ended March 31, 2020
Net sales revenue
$ 9,500
Cost of goods sold ($6,000 – $300)
5,700
Gross profit
$ 3,800
Accounts receivable ($10,000 – $300)
EXERCISE 18.17 (15–20 minutes)
(a) 1. The journal entries to record sales and related cost of goods sold
are as follows:
March 10, 2020
2. The journal entries to record sales returns are as follows:
March 25, 2020
3. The adjusting journal entries required to record estimated
remaining returns are as follows:
EXERCISE 18.17 (continued)
(b) Financial Statement Presentation
Income Statement (partial)
For the quarter ended March 31, 2020
Sales revenue (200 × $50)
$10,000
Less: Sales returns and allowances ($300 + $200)
500
Cost of goods sold ($6,000 – $180 – $120)
5,700
Gross profit
NOTE TO INSTRUCTOR: Some companies may choose to record sales
revenue net. If sales are recorded net, the entries are as follows:
(a)
March 10, 2020
Cash (200 X $50) …………………………..………..
Refund Liability (10 X $50)………….….
10,000
500
EXERCISE 18.17 (continued)
The journal entries to record the return is as follows:
March 25, 2020
(b) Financial Statement Presentation
Income Statement (partial)
For the quarter ended March 31, 2020
EXERCISE 18.18 (20-25 minutes)
(a) 1. The journal entries to record sales and related cost of goods sold
are as follows:
October 2, 2020
2. The journal entry to record the allowance is as follows:
3. The adjusting journal entry to record estimated remaining
allowances is as follows:
(b) Financial Statement Presentation
Income Statement (partial)
EXERCISE 18.18 (continued)
Balance Sheet (partial)
(a)
1. October 2, 2020
Accounts Receivable (200 X $30) ……..…..
Allowance for Sales Returns
6,000
Inventory..…………………….…………..
2. The journal entries to record the allowance is as follows:
October 16, 2020
3. The adjusting journal entry to record estimated remaining
allowances is as follows:
EXERCISE 18.18 (continued)
(b) Financial Statement Presentation
Income Statement (partial)
For the quarter ended October 31, 2020
EXERCISE 18.19 (15–20 minutes)
(a) The journal entries to record sales and related cost of goods sold are
as follows:
June 3, 2020
EXERCISE 18.19 (continued)
*Because these goods were flawed they likely will be separated
from other inventory.
The journal entry to record delivery cost is as follows:
NOTE TO INSTRUCTOR: Some companies may choose to record sales
revenue net. If sales are recorded net, the entries are as follows:
June 3, 2020
Accounts Receivable (Mount) .…....…..…..
Allowance for Sales Returns
8,000
and Allowances.………………..
800
Sales Revenue..………………………...
7,200
EXERCISE 18.19 (continued)
Returned Inventory [($6,000/ $8,000) X $300] 225
Estimated Inventory Returns ……….. 225
Note: Because these goods were flawed, they likely will be
separated from other inventory.
EXERCISE 18.20 (25–30 minutes)
(a) Sales reported gross at point of sale.
January 2, 2020
(b) March 1, 2020
Sales Returns and Allowances ……….…….
100,000
EXERCISE 18.20 (continued)
March 15, 2020
Cash ($1,500,000 − $100,000) …………….…
Accounts Receivable ………..…………
1,400,000
1,400,000
(c)
March 31, 2020
Sales Returns and Allowances……………..
200,000
(a) January 2, 2020
Accounts Receivable……….………………………. 1,500,000
Allowance for Sales Returns and
EXERCISE 18.20 (continued)
(b) March 1, 2020
Allowance for Sales Returns and
Allowances ……………………………………
Accounts Receivable ………………………..
100,000
100,000
(c) March 31, 2020
Sales Returns and Allowances……………… 200,000
Accounts Payable…………….…………. 200,000*
EXERCISE 18.21 (15–20 minutes)
(a) Uddin could recognize revenue at the point of sale based upon the time
of shipment because the books are sold f.o.b. shipping point. That is,
(c) The entries to record the sale of the textbooks and related cost of
goods sold are as follows:
July 1, 2020
(d) The entries to record the returns, related cost of goods sold, and cash
payment are as follows:
October 3, 2020
EXERCISE 18.21 (continued)
(e) On October 31, 2020, Uddin prepares financial statements
On Uddin’s income statement, the following information is reported:
Sales revenue
$15,000,000
Less: Sales returns and allowances
1,500,000
Cost of goods sold ($12,000,000 – $1,200,000)
Net Income
$ 2,700.000
(c)
July 1, 2020
Accounts Receivable……….………………………. 15,000,000
Allowance for Sales Returns and
Allowances ($15,000,000 X .12) ……….
1,800,000
Sales Revenue (Texts) ……………………….
13,200,000
EXERCISE 18.21 (continued)
(d)
Inventory Returned on October 3, 2020
Allowance for Sales Returns and
(e) On October 31, 2020, Uddin prepares financial statements. As no other
returns are expected the following entry is made to close out the
allowance:
Allowance for Sales Returns and
Allowances ……………………….………….. 300,000
Sales Revenue (Texts) ………………….….. 300,000j
Allowances ……………………………………
1,500,000
EXERCISE 18.22 (20–25 minutes)
(a) In this case, due to the agreement to repurchase the equipment,
Cramer continues to have control of the asset and therefore this
agreement is a financing transaction and not a sale. That is, if the
(b) December 31, 2020
Interest Expense ………………………….………….. 1,200
(c) June 30, 2021
Interest Expense ………………………….………….. 1,200
EXERCISE 18.23 (10–15 minutes)
Because Zagat has an unconditional obligation (forward) to repurchase the
ingots at an amount greater than the selling price, the transaction is treated
as a financing.
(a) March 1, 2020
The selling price of the ingots is $200,000. Zagat would record the
(b)
May 1, 2020
Interest Expense ($200,000 X .02)……………...
4,000
EXERCISE 18.24 (10–15 minutes)
(a) This transaction is a bill-and-hold situation. Delivery of the counters is
(b) Revenue is reported at the time title passes if the following conditions
are met:
(1) The reason for the bill-and-hold arrangement must be substantive.