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Chapter 18: Question E18-10 (page 1036)

(Allocate Transaction Price) Geraths Windows manufactures and sells custom storm windows for three-season porches. Geraths also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Geraths enters into the following contract on July 1, 2017, with a local homeowner. The customer purchases windows for a price of \(2,400 and chooses Geraths to do the installation. Geraths charges the same price for the windows irrespective of whether it does the installation or not. The installation service is estimated to have a standalone selling price of \)600. The customer pays Geraths \(2,000 (which equals the standalone selling price of the windows, which have a cost of \)1,100) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2017, Geraths completes installation on October 15, 2017, and the customer pays the balance due. Prepare the journal entries for Geraths in 2017. (Round amounts to nearest dollar.)

Short Answer

Expert verified

The total revenue earned by Geraths is $2,400.

Step by step solution

01

Meaning of Standalone Selling Price

Standalone selling price is the price at which a company will sell a product or serviceto a single consumer. This requires setting an adequate selling price for a product or service with some percentage of the profit.

02

Journal entries for Geraths in 2017

Date

Particular

Debit ($)

Credit ($)

July 1, 2017

No entry

September 1, 2017

Cash a/c

2,000

Accounts receivables a/c

400

To Unearned service revenue a/c

554

To Sales revenue a/c

1,846

September 1, 2017

Cost of goods sold a/c

1,100

To Inventory a/c

1,100

October 15, 2017

Cash a/c

400

To Accounts receivables a/c

400

October 15, 2017

Unearned service revenue a/c

554

To Service revenue a/c

554

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Most popular questions from this chapter

(Sales with Returns) On March 10, 2017, Steele Company sold to Barr Hardware 200 tool sets at a price of \(50 each (cost \)30 per set) with terms of n/60, f.o.b. shipping point. Steele allows Barr to return any unused tool sets within 60 days of purchase. Steele estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2017, Barr returned six tool sets and received a credit to its account.

Instructions

(a) Prepare journal entries for Steele to record (1) the sale on March 10, 2017, (2) the return on March 25, 2017, and (c) any adjusting entries required on March 31, 2017 (when Steele prepares financial statements). Steele believes the original estimate of returns is correct.

(b) Indicate the income statement and balance sheet reporting by Steele at March 31, 2017, of the information related to the Barr sales transaction.

Telephone Sellers Inc. sells prepaid telephone cards to customers. Telephone Sellers then pays the telecommunications company, TeleExpress, for the actual use of its telephone lines related to the prepaid telephone cards. Assume that Telephone Sellers sells \(4,000 of prepaid cards in January 2017. It then pays TeleExpress based on usage, which turns out to be 50% in February, 30% in March, and 20% in April. The total payment by Telephone Sellers for TeleExpress lines over the 3 months is \)3,000. Indicate how much income Telephone Sellers should recognize in January, February, March, and April.

(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.

In September 2017, Gaertner Corp. commits to selling 150 of its iPhone-compatible docking stations to Better Buy Co. for \(15,000 (\)100 per product). The stations are delivered to Better Buy over the next 6 months. After 90 stations are delivered, the contract is modified and Gaertner promises to deliver an additional 45 products for an additional \(4,275 (\)95 per station). All sales are cash on delivery.

Instructions

(a) Prepare the journal entry for Gaertner for the sale of the first 90 stations. The cost of each station is $54.

(b) Prepare the journal entry for the sale of 10 more stations after the contract modification, assuming that the price for the additional stations reflects the standalone selling price at the time of the contract modification. In addition, the additional stations are distinct from the original products as Gaertner regularly sells the products separately.

(c) Prepare the journal entry for the sale of 10 more stations (as in (b)), assuming that the pricing for the additional products does not reflect the standalone selling price of the additional products and the prospective method is used.

Archer Construction Company began work on a \(420,000 construction contract in 2017. During 2017, Archer incurred costs of \)278,000, billed its customer for \(215,000, and collected \)175,000. At December 31, 2017, the estimated additional costs to complete the project total $162,000. Prepare Archer’s journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method.
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