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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
On January 1, 2019, ForeRunner Inc. enters into a contract with a sporting goods company to provide 100 GPS-enabled watches for $25,000 ($250 per watch) over the next 6 months. On April 1, 2019, when 80 of the watches have been delivered, the contract is modified.
Required:
- 1. Assume 30, 20, and 30 watches were delivered in January, February, and March, respectively. Prepare Fore-Runner’s journal entries to record revenue for each of these months.
- 2. Assume the contract is modified to include an additional 40 watches at $205 per watch, which is the standalone selling price on April 1, 2019. Assume that 20 watches are sold to the sporting goods company in April, May and June. Prepare the journal entries to record the watch sales in April, May, and June.
- 3. Assume the contract is modified to include an additional 40 watches at $205 per watch, which does not represent the stand-alone selling price on April 1, 2019. Assume that 20 watches are sold to the sporting goods company in April, May and June. Prepare the journal entries to record the watch sales in April, May, and June.
- 4. Assume that the contract is modified to reduce the price of the remaining 20 watches from the original order of 100 watches to $205 per watch, which is significantly lower than the stand-alone selling price on April 1, 2019. Assume 10, 5, and 5 watches are sold in April, May, and June, respectively. Prepare the journal entries to record the watch sales in April, May, and June.
1.
Prepare journal entries to record the revenue recognition.
Revenue recognition by Companies:
Companies must recognise revenues to represent the “Transmission of promised goods and services to customers in an amount that reflects the consideration” to which the entity anticipates to be authorized in exchange for those good and services.
Journal entry:
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.
Prepare journal entries:
| Date | Account title and explanation | Debit ($) | Credit ($) |
| January,2019 | Cash(1) | 7,500 | |
| Sales revenue | 7,500 | ||
| (To record the sale of watch) | |||
| Febraury,2019 | Cash(2) | 5,000 | |
| Sales revenue | 5,000 | ||
| (To record the sale of watch) | |||
| March,2019 | Cash(1) | 7,500 | |
| Sales revenue | 7,500 | ||
| (To record the sale of watch) |
Table (1)
To record the sale of watch during January 2019:
- Cash is an asset and it is increased. Therefore, debit cash account by $7,500.
- Sales revenue is a component of stockholders’ equity and it is increased. Therefore, credit sales revenue account by $7,500...
2.
Prepare journal entries to record the sale of watch during the months of April, May and June.
3.
Prepare journal entries to record the sale of watches during the months of April, May and June.
4.
Prepare journal entries to report the sale of watches during the months of April, May and June.
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