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Chapter 18: Q8Q. (page 1031)

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

Short Answer

Expert verified

The total of both debit and credit sides is $16,500.

Step by step solution

01

Definition of Journal Entry

Journal is a book of accounts in which a company records entries of business transactions. It consists of 4 columns. The first column contains the date, the second column contains the account names, the third column contains the debit amount, and the fourth contains thecredit amount.

02

Journal entry on 15 December 2017

No entry will be recorded on 10 October 2017 as both the parties did not perform the contract.

Revenue will be recognized on 15 December 2017 as the executor delivered the product on 15 December 2017, which means it performed the obligation. Therefore, a journal entry will be:

Date

Particulars

Debit ($)

Credit ($)

October 10, 2017

No Entry

December 15, 2017

Notes Receivable a/c

5,000

Cash a/c

5,000

Sales Revenue a/c

10,000

December 15, 2017

Cost of Goods Sold a/c

6,500

Inventory a/c

6,500

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Most popular questions from this chapter

What is the transaction price? What additional factors related to the transaction price must be considered in determining the transaction price?

Ismail Construction enters into a contract to design and build a hospital. Ismail is responsible for the overall management of the project and identifies various goods and services to be provided, including engineering, site clearance, foundation, procurement, construction of the structure, piping and wiring, installation of equipment, and finishing. Does Ismail have a single performance obligation to the customer in this revenue arrangement? Explain.

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.

Guillen, Inc. began work on a \(7,000,000 contract in 2017 to construct an office building. Guillen uses the completed-contract method. At December 31, 2017, the balances in certain accounts were Construction in Process \)1,715,000, Accounts Receivable \(240,000, and Billings on Construction in Process \)1,000,000. Indicate how these accounts would be reported in Guillen’s December 31, 2017, balance sheet.

(Determine Transaction Price) Taylor Marina has 300 available slips that rent for $800 per season. Payments must be made in full by the start of the boating season, April 1, 2018. The boating season ends October 31, and the marina has a December 31 year-end. Slips for future seasons may be reserved if paid for by December 31, 2018. Under a new policy, if payment for 2019 season slips is made by December 31, 2018, a 5% discount is allowed. If payment for 2020 season slips is made by December 31, 2018, renters get a 20% discount (this promotion hopefully will provide cash flow for major dock repairs).

On December 31, 2017, all 300 slips for the 2018 season were rented at full price. On December 31, 2018, 200 slips were reserved and paid for the 2019 boating season, and 60 slips were reserved and paid for the 2020 boating season.

Instructions

(a) Prepare the appropriate journal entries for December 31, 2017, and December 31, 2018.

(b) Assume the marina operator is unsophisticated in business. Explain the managerial significance of the above accounting to this person.
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