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Chapter 18: Q.18-8P_2 (page 1045)

Question: P18-8 (LO2,3) (Time Value, Gift Cards, Discounts) Presented below are two independent revenue arrangements for Colbert Company.

Instructions

Respond to the requirements related to each revenue arrangement.

(b) Colbert sells 20 nonrefundable \(100 gift cards for 3D printer paper on March 1, 2017. The paper has a standalone selling price of \)100 (cost $80). The gift cards expiration date is June 30, 2017. Colbert estimates that customers will not redeem 10% of these gift cards. The pattern of redemption is as follows.

Redemption total

March 31

50%

April 30

80

June 30

85

Prepare the 2017 journal entries related to the gift cards at March 1, March 31, April 30, and June 30.

Short Answer

Expert verified

Answer

Both sides of the Journal total$5,060.

Step by step solution

01

Definition of Non-Refundable

The fees taken by any institute or any consultant which is not subjected to be refunded in any case is known as non-refundable.

02

Journal entries for 2017

Date

Accounts and Explanation

Debit $

Credit $

1 March 2017

Cash

$2,000

Unearned sales revenue

$2,000

31 March 2017

Unearned sales revenue

$1,000

Sales revenue

$1,000

31 March 2017

Cost of goods sold

$800

Inventory

$800

30 April 2017

Unearned sales revenue

$600

Sales revenue

$600

30 April 2017

Cost of goods sold

$480

Inventory

$480

30 June 2017

Unearned sales revenue

$100

Sales revenue

$100

30 June 2017

Cost of goods sold

$80

Inventory

$80

$5,060

$5,060

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Most popular questions from this chapter

On March 1, 2017, Parnevik Company sold goods to Goosen Inc. for \(660,000 in exchange for a 5-year, zerointerest-bearing note in the face amount of \)1,062,937 (an inputed rate of 10%). The goods have an inventory cost on Parnevik’s books of $400,000. Prepare the journal entries for Parnevik on (a) March 1, 2017, and (b) December 31, 2017.

Tyler Financial Services performs bookkeeping and tax-reporting services to startup companies in the Oconomowoc area. On January 1, 2017, Tyler entered into a 3-year service contract with Walleye Tech. Walleye promises to pay \(10,000 at the beginning of each year, which at contract inception is the standalone selling price for these services. At the end of the second year, the contract is modified and the fee for the third year of services is reduced to \)8,000. In addition, Walleye agrees to pay an additional $20,000 at the beginning of the third year to cover the contract for 3 additional years (i.e., 4 years remain after the modification). The extended contract services are similar to those provided in the first 2 years of the contract.

Instructions

(a) Prepare the journal entries for Tyler in 2017 and 2018 related to this service contract.

(b) Prepare the journal entries for Tyler in 2019 related to the modified service contract, assuming a prospective approach.

(c) Repeat the requirements for part (b), assuming Tyler and Walleye agree on a revised set of services (fewer bookkeeping services but more tax services) in the extended contract period and the modification results in a separate performance obligation.

Describe the conditions when contract assets and liabilities are recognized and presented in financial statements.

(Existence of a Contract) On May 1, 2017, Richardson Inc. entered into a contract to deliver one of its specialty mowers to Kickapoo Landscaping Co. The contract requires Kickapoo to pay the contract price of \(900 in advance on May 15, 2017. Kickapoo pays Richardson on May 15, 2017, and Richardson delivers the mower (with cost of \)575) on May 31, 2017.

Instructions

(a) Prepare the journal entry on May 1, 2017, for Richardson.

(b) Prepare the journal entry on May 15, 2017, for Richardson.

(c) Prepare the journal entry on May 31, 2017, for Richardson.

When does a company satisfy a performance obligation? Identify the indicators of satisfaction of a performance obligation.
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