Concept explainers
1.
Ascertain the transaction price and state the manner in which the sales commission must be accounted.
1.
Explanation of Solution
Transaction price:
Transaction price is the amount of consideration that is estimated by the company to be authorized in exchange, for delivering the promised goods and services to the customer. Transaction price is examined by the seller by analyzing the terms of the contract and the normally conducts of the business
- Sales commission is capitalized as a “contract cost asset and amortized on a systematic basis consistent” with the probable pattern of transfer of the related goods or services under the contract, since the sales commission is an “incremental cost”. FASB ASC 340-40- 25-1 states that:
- “An entity shall recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs”.
- Only incremental must be identified as assets. “Incremental costs” of attaining a contract are those costs that would not have been incurred by the entity if the contract had not been obtained (i.e., sales commissions).
2.
Discuss if the delayed payment contract contains a significant financing contract.
2.
Explanation of Solution
Identifying a “significant financing component” in a contract needs judgment. It could be generally difficult in a long-term arrangement where a product or service delivery and cash payment takes place during the term of the contract. FASB ASC 606-10-32-19 states that:
“[W]hen adjusting the promised amount of consideration for a significant financing component, an entity shall use the discount rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception. That rate would reflect the credit characteristics of the party receiving financing in the contract, as well as any collateral or security provided by the customer or the entity, including assets transferred in the contract”.
3.
Journalize entries of Company O for the year 2019.
3.
Explanation of Solution
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.
Prepare journal entries:
Date | Account titles and Explanation | Debit ($) | Credit ($) |
January 2019 | Accounts receivable (1) | 456,000 | |
Sales revenue (2) | 400,000 | ||
Unearned interest | 56,000 | ||
(To record the amount of accounts receivable) | |||
Sales commission (3) | 20,000 | ||
Cash | 20,000 | ||
(To record the amount of sales commission) | |||
December 31,2019 | Unearned interest (4) | 56,000 | |
Interest revenue | 56,000 | ||
(To record the amount of unearned interest) | |||
Cash (5) | 456,000 | ||
Accounts receivable | 456,000 | ||
(To record the amount of cash) | |||
Sales commission expense (3) | 20,000 | ||
Sales commission | 20,000 | ||
(To record the amount of sales commission expense) |
Table (1)
Working notes:
(1)Calculate the amount of accounts receivable:
(2)Calculate the amount of sales revenue:
(3)Calculate the amount of sales commission:
(4)Calculate the amount of unearned interest:
(5)Calculate the amount of cash:
4.
Journalize entries of Company P for the year 2019
4.
Explanation of Solution
Prepare journal entries:
Date | Account titles and Explanation | Debit ($) | Credit ($) |
January 2019 | Cash (6) | 400,000 | |
Sales revenue | 400,000 | ||
(To record the amount of sales revenue) | |||
Sales commission expense (3) | 20,000 | ||
Cash | 20,000 | ||
(To record the sales commission expense) |
Table (2)
Working note:
(6)Calculate the amount of cash:
Want to see more full solutions like this?
Chapter 17 Solutions
Intermediate Accounting: Reporting And Analysis
- On December 1, 2019, AwakcAllNight Inc. sells 5,000 super caffeinated candy bars to Campus Grocers. The candy bars sell for 3 per bar. In addition, AwakcAllNight pays Campus Grocers a 900placement fee to ensure that its candy bars are always stocked prominently by the cash register. The 900 is paid at the end of each month based on the results of random inspections of Campus Grocers by AwakcAllNight to ensure that the terms of the contract are being followed. Required: 1. Determine the transaction price for Awake AllNights revenue contract. 2. Prepare AwakeAllNights journal entries to recognize sales revenue and pay Campus Grocers the placement fee.arrow_forwardVolleyElite runs a volleyball program consisting of camps, tournaments, and specialized coaching. VolleyElite charges customers 500 per year for access to its facilities and programs. In addition, VolleyElite charges each customer a 100 registration fee. The fee is not refundable and must be paid at the initiation of the contract. Should the registration fee be considered a separate performance obligation from the yearly dues?arrow_forwardPopcorn Company manufactures and sells commercial ovens. It is currently running a promotion in which it pays a $750 rebate to any customer that purchases an oven from one of its participating dealers. The rebate must be returned within 60 days of purchase. Given its historical experience and the ease of obtaining a rebate, Popcorn expects all qualifying customers will receive the rebate. Required: Prepare the journal entry to record the sale of an oven to a participating dealer for $8,000.arrow_forward
- help mearrow_forwardMoon Co. sells food blenders. During 2019, Moon made 37,000 blenders at an average cost of $80. It sold out 25,000 food blenders at an average price of $130. Moon provides a 2-year warranty for each blender sold and estimates 9% of blenders will be returned for warranty with an estimated cost of $36 each. By the end of 2019, Moon has spent $44,000 servicing the warranty repairs. All the above transactions have been settled in cash. During 2019, Moon has 50 employees who work 5-day per week and get paid each other Friday. Salaries of $324,000 and payroll expense of $37,000 have been paid until December 22. Since the business grows quickly, Moon needs cash to expand. By the end of 2018, the Board of Directors authorized the management to issue 10-year bonds with a par value of $3,000,000, annual contract interest rate of 8% and semi-annual interest payments. Moon chose to use the straight-line method to amortize discount or premium on its bonds. On January 1, 2019, management…arrow_forwardMoon Co. sells food blenders. During 2019, Moon made 37,000 blenders at an average cost of $80. It sold out 25,000 food blenders at an average price of $130. Moon provides a 2-year warranty for each blender sold and estimates 9% of blenders will be returned for warranty with an estimated cost of $36 each. By the end of 2019, Moon has spent $44,000 servicing the warranty repairs. All the above transactions have been settled in cash. During 2019, Moon has 50 employees who work 5-day per week and get paid each other Friday. Salaries of $324,000 and payroll expense of $37,000 have been paid until December 22. Since the business grows quickly, Moon needs cash to expand. By the end of 2018, the Board of Directors authorized the management to issue 10-year bonds with a par value of $3,000,000, annual contract interest rate of 8% and semi-annual interest payments. Moon chose to use the straight-line method to amortize discount or premium on its bonds. On January 1, 2019, management…arrow_forward
- Moon Co. sells food blenders. During 2019, Moon made 37,000 blenders at an average cost of $80. It sold out 25,000 food blenders at an average price of $130. Moon provides a 2-year warranty for each blender sold and estimates 9% of blenders will be returned for warranty with an estimated cost of $36 each. By the end of 2019, Moon has spent $44,000 servicing the warranty repairs. All the above transactions have been settled in cash. During 2019, Moon has 50 employees who work 5-day per week and get paid each other Friday. Salaries of $324,000 and payroll expense of $37,000 have been paid until December 22. Since the business grows quickly, Moon needs cash to expand. By the end of 2018, the Board of Directors authorized the management to issue 10-year bonds with a par value of $3,000,000, annual contract interest rate of 8% and semi-annual interest payments. Moon chose to use the straight-line method to amortize discount or premium on its bonds. On January 1, 2019, management issued…arrow_forwardMoon Co. sells food blenders. During 2019, Moon made 37,000 blenders at an average cost of $80. It sold out 25,000 food blenders at an average price of $130. Moon provides a 2-year warranty for each blender sold and estimates 9% of blenders will be returned for warranty with an estimated cost of $36 each. By the end of 2019, Moon has spent $44,000 servicing the warranty repairs. All the above transactions have been settled in cash. During 2019, Moon has 50 employees who work 5-day per week and get paid each other Friday. Salaries of $324,000 and payroll expense of $37,000 have been paid until December 22. Since the business grows quickly, Moon needs cash to expand. By the end of 2018, the Board of Directors authorized the management to issue 10-year bonds with a par value of $3,000,000, annual contract interest rate of 8% and semi-annual interest payments. Moon chose to use the straight-line method to amortize discount or premium on its bonds. On January 1, 2019, management issued…arrow_forwardPortelli Services provides room-cleaning arrangements for hotels in Pennsylvania. On April 1, Silvia Hotels & Resorts signed an agreement to outsource its room-cleaning functions to Portelli. The contract specifies the service fee to be $15,000 per month, and all payments are to be made shortly after the end of each quarter. It also specifies that Portelli will receive an additional quarterly bonus of $3,000 if, during that quarter, Silvia receives no more than five complaints from customers about room cleanliness. • On April 1, based on historical experience, Portelli estimated that there is a 75% chance that it will receive the quarterly bonus. On May 5, Portelli learned that, during March, there were two complaints from customers related to room cleanliness. Based on this new information, Portelli revised its estimate downward to 40% that it would be entitled to receive the quarterly bonus. On June 30, Silvia notified Portelli that, for the quarter ended, there were four complaints…arrow_forward
- Avon Corporation sells phone cases to public and private companies. They are located at 123 Locus Rd, Markham, ON. They employ 200 full time employees who work in sales, customer service and office support roles. They have had an annual remuneration of over $1,000,000 for the past several years therefore their EHT rate is 1.95%. Pay period #1 started December 27, 2020. All are paid on a bi-weekly basis. All benefits are processed each pay on an as enjoyed basis. The first pay day for employees is Jan 13, 2021. They have three staff in the Customer Service Department answering questions from clients and the general public. They all work Monday to Friday and do not work statutory holidays but are paid for them. Neema has been with Avon for 3 years and answers calls specifically from clients. She earns $18.25 per hour and works 35 hours per week. She also does not work any overtime. She is paid bi-weekly. Her employer provides the following: · Health and Dental - at a total…arrow_forwardPrydain Pharmaceuticals is reviewing its employee healthcare program. Currently, the company pays a fixed fee of$300 per month for each employee, regardless of the number or dollar amount of medical claims filed. Anotherhealth-care provider has offered to charge the company$100 per month per employee and $30 per claim filed. Athird insurer charges $200 per month per employee and$10 per claim filed. Which health-care program should Prydain join? How would the average number of claimsfiled per employee per month affect your decision?arrow_forwardABC sells products to customers with a warranty. Customers can return the products to ABC for a free replacement within 90 days of purchase. During April 2022, ABC sold 1,500 products to customers. During May, ABC sold 1,800 products to customers. Based on past sales, ABC estimates that 5% of all products sold will be returned for a free replacement. The products cost ABC $20 to produce and they are sold for $35 per item. During April, 100 products were returned and during May, 120 items were returned. As of March 31, 2022, ABC's Warranty Liability had a credit balance of $12,000. If ABC had an inventory balance of $80,000 on March 31, 2022, what should the inventory balance be on April 30, 2022? No purchases of inventory were made during April or May, 2022. Please enter all amounts as a positive number with no dollar signs or commas. For example, if the answer is $2,100, enter 2100. THE ANSWER IS NOT : 49800 , 30000 , 14880 , 48000arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning