P18-5 (LO2,3,4) (Allocate Transaction Price, Returns, and Consignments) Ritt Ranch & Farm is a distributor of ranch and farm equipment. Its products range from small tools, power equipment for trench-digging and fencing, grain dryers, and barn winches. Most products are sold direct via its company catalog and Internet site. However, given some of its specialty products, select farm implement stores carry Ritt’s products. Pricing and cost information on three of Ritt’s most popular products are as follows.

Item	Standalone selling price (Cost)
Mini-trencher	\(3,600 (2,000)
Power fence hole auger	\)1,200 (800)
Grain/Hay dryer	$14,000 (11,000)

Instructions

Respond to the requirements related to the following independent revenue arrangements for Ritt Ranch & Farm.

On August 10, 2017, Ritt sells 16 mini-trenchers to a farm co-op in western Minnesota. Ritt provides a 4% volume discount on the mini-trenchers if the co-op has a 15% increase in purchases from Ritt compared to the prior year. Given the slowdown in the farm economy, sales to the co-op have been flat, and it is highly uncertain that the benchmark will be met. Prepare the journal entry for Ritt on August 10, 2017.

Step by step solution

01

Definition of Ending Inventory

The current asset account that includes the number of goods that are still unsold and remains in the hand of the business entity is known as ending inventory.

02

Journal entries

Date	Accounts and Explanation	Debit $	Credit $
10 Aug 2017	Cash (16 x $3600)	$57,600
	Sales revenue		$57,600
10 Aug 2017	Cost of goods sold (16 x $2000)	$32,000
	Ending Inventory		$32,000
		$89,600	$89,600

Note: Volume discount is not probable. Therefore, it is not deducted.

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