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Chapter 18: Q28Q. (page 1031)
What are the two types of warranties? Explain the accounting for each type.
There are two types of warranties:
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On May 10, 2017, Cosmo Co. enters into a contract to deliver a product to Greig Inc. on June 15, 2017. Greig agrees to pay the full contract price of \(2,000 on July 15, 2017. The cost of the goods is \)1,300. Cosmo delivers the product to Greig on June 15, 2017, and receives payment on July 15, 2017. Prepare the journal entries for Cosmo related to this contract. Either party may terminate the contract without compensation until one of the parties performs
Jupiter Company sells goods to Danone Inc. by accepting a note receivable on January 2, 2017. The goods have a sales price of \(610,000 (cost of \)500,000). The terms are net 30. If Danone pays within 5 days, however, it receives a cash discount of $10,000. Past history indicates that the cash discount will be taken. On January 28, 2017, Danone makes payment to Jupiter for the full sales price.
Instructions
(a) Prepare the journal entry(ies) to record the sale and related cost of goods sold for Jupiter Company on January 2, 2017, and the payment on January 28, 2017. Assume that Jupiter Company records the January 2, 2017, transaction using the net method.
(b) Prepare the journal entry(ies) to record the sale and related cost of goods sold for Jupiter Company on January 2, 2017, and the payment on January 28, 2017. Assume that Jupiter Company records the January 2, 2017, transaction using the gross method.
Jansen Corporation shipped \(20,000 of merchandise on consignment to Gooch Company. Jansen paid freight costs of \)2,000. Gooch Company paid \(500 for local advertising, which is reimbursable from Jansen. By year-end, 60% of the merchandise had been sold for \)21,500. Gooch notified Jansen, retained a 10% commission, and remitted the cash due to Jansen. Prepare Jansen’s journal entry when the cash is received.
On October 10, 2017, Executor Co. entered into a contract with Belisle Inc. to transfer Executor’s specialty products (sales value of \(10,000, cost of \)6,500) on December 15, 2017. Belisle agrees to make a payment of $5,000 upon delivery and signs a promissory note to pay the remaining balance on January 15, 2018. What entries does Executor make in 2017 on this contract? Ignore time value of money considerations
On June 1, 2017, Mills Company sells \(200,000 of shelving units to a local retailer, ShopBarb, which is planning to expand its stores in the area. Under the agreement, ShopBarb asks Mills to retain the shelving units at its factory until the new stores are ready for installation. Title passes to ShopBarb at the time the agreement is signed. The shelving units are delivered to the stores on September 1, 2017, and ShopBarb pays in full. Prepare the journal entries for this bill-and-hold arrangement (assuming that conditions for recognizing the sale as a bill-and-hold sale have been met) for Mills on June 1 and September 1, 2017. The cost of the shelving units to Mills is \)110,000.
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