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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Palantir Corp. sells specialized equipment to the healthcare industry. Palantir pays its sales agents a salary plus a 5% commission on sales. Sales agents employed by the company sold 10 Osgilith MRI machines that were delivered and installed in January 2019. The MRI machine sells for $45,600 due at the end of 12 months. Alternatively, customers may elect to pay $40,000 at delivery and installation. All customers purchasing machines during January elected to pay at the end of the 12-month period.

Required:

  1. 1. Determine the transaction price of the Osgilith MRI machines, and discuss how Palantir would account for the sales commission.
  2. 2. Discuss whether the delayed payment contract contains a significant financing component.
  3. 3. Prepare the journal entries for 2019 for the Osgilith MRI machines sold by Palantir to customers who elect the delayed payment option.
  4. 4. Prepare the 2019 journal entries that Palantir would make for the 10 Osgilith MRI machines that are sold if customers elect to pay at delivery.

1.

To determine

Ascertain the transaction price and state the manner in which the sales commission must be accounted.

Explanation

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”...

2.

To determine

Discuss if the delayed payment contract contains a significant financing contract.

3.

To determine

Journalize entries of Company O for the year 2019.

4.

To determine

Journalize entries of Company P for the year 2019

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