Concept explainers
Requirement – 1
Transaction price:
Transaction price refers to the price that is paid at the time of delivery or after delivery of goods and/or services. Specific situations affecting the transaction price are as follows:
- Variable amount of consideration and the restriction on its recognition.
- Rights for sales return
- Whether the seller is acting as a principle or an agent
- Time value of money
- Payments by the seller to the customer
Variable consideration:
Variable consideration refers to the uncertain transaction price that depends upon the outcome of future events.
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
To prepare: The
Requirement – 2
To prepare: The journal entry to record F’s purchase of advertising services from W on June 15, 2018.
Requirement – 3
To prepare: The journal entry to record the cash received from W on June 30, 2018
Requirement – 4
To discuss: The effect of recognized revenue when it is uncollectible accounts.
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INTERMEDIATE ACCT.CUSTOM W/CONNECT
- Topic: Premium Liability Problem 2-1 Miracle Company manufactures a product that is packaged and sold. A plate is offered to customers sending in three wrappers accompanied by a remittance of P10. Data with respect to the premium offer are summarized below. 2020 2021 Sales 3,600,000 4,200,000 Purchase of premium, P50 per plate 390,000 580,000 Number of plates distributed as premiums 5,000 9,000 Estimated number of plates to be distributed in subsequent period 2,000 3,000 Distribution cost P20 per plate Solve for the following amounts The Premium Premium Expense Premium Liabilityarrow_forwardE 6-6 Performance obligations; customer option for additional goods or services; residual method LO6-2, LO6-4,LO6-5,LO6-6 Clarks Inc., a shoe retailer, sells boots in different styles. In early November, the company starts selling "SunBoots" to customers for $70 per pair. When a customer purchases a pair of SunBoots, Clarks also gives the customer a 30% discount coupon for any additional future purchases made in the next 30 days. Customers can't obtain the discount coupon otherwise. Clarks anticipates that approximately 20% of customers will utilize the coupon, and that on average those customers will purchase additional goods that normally sell for $100. Required: 1. How many performance obligations are in a contract to buy a pair of SunBoots? 2. Assume Clarks cannot estimate the standalone selling price of a pair of SunBoots sold without a coupon. Prepare a journal entry to record revenue for the sale of 1,000 pairs of SunBoots, assuming that Clarks uses the residual method to…arrow_forwardQUESTION 3 A manufacturer sells his final product for R300 plus VAT (@15%) to a wholesaler. The wholesaler sells the product at a mark-up of 20% above cost to the manufacturer. If the retailer's mark-up on cost is 25%, the final consumer will pay.......(including VAT). OA. R414 O B. R517.50 O C. R450.00 O D. R360.00arrow_forward
- 20. The list price of an air conditioner is OMR 250. If manufacturer sells this product to a retailer for list price less 15% discount, what will be the amount of account receivable to be recorded by the manufacturer? a. OMR 250 b. OMR 212.50 c. OMR 37.50 d. OMR 287.50arrow_forwardP15–6 Early payment discount decisions Prairie Manufacturing has four possible suppliers, all of which offer different credit terms. Except for the differences in credit terms, their products and services are virtually identical. The credit terms offered by these suppliers are shown in the following table. (Note: Assume a 365-day year.) Supplier Credit terms J 1/5 net 30 EOM K 2/20 net 80 EOM L 1/15 net 60 EOM M 3/10 net 90 EOM Calculate the approximate cost of giving up the early payment discount from each supplier. If the firm needs short-term funds, which are currently available from its commercial bank at 9%, and if each of the suppliers is viewed separately, which, if any, of the suppliers’ early payment discounts should the firm give up? Explain why. Now assume that the firm could stretch by 30 days its accounts payable (net period only) from supplier M. What impact, if any, would that have on your answer in part brelative to this supplier?arrow_forwardII - Single Performance Obligation - Polnt in Time vs. Over Time Anton Video Tech sells the Play Station Portable (PSP) game-box, a gaming console. A PSP game-box is only a gaming module and includes no other goods or services. When should Anton recognize revenue for the following sale of 200 PSP games-boxes to Robcom Computers? • December 20, 20x6: Robcom Computers orders 200 games-boxes at a price of P7,600 each, promising payment within thirty (30) days after delivery. • January 1, 20x7: Anton delivers 200 PSP game-boxes to Robcom Computers, and title to the PSP game-boxes transfers to Robcom Computers. • January 25, 20x7: Anton receives P1,520,000 from Robcom. Required: 1. Prepare the journal entryfies) on December 20, 20x7. 2. Prepare the journal entry(ies) on January 1, 20x7. 3. Prepare the journal entry(ies) on January 25, 20x7. 4. Determine the amount of revenue from sales on December 20, 20x7. 5. Determine the amount of revenue from sales on January 1, 20x8. 6. Determine the…arrow_forward
- Item3 Return to questionItem 3 On June 30, 2024, the Esquire Company sold merchandise to a customer and accepted a noninterest-bearing note in exchange. The note requires payment of $42,000 on March 31, 2025. The fair value of the merchandise exchanged is $40,425. Esquire views the financing component of this contract as significant. Required: Prepare journal entries to record the sale of merchandise (omit any entry that might be required for the cost of the goods sold), any December 31, 2024 interest accrual, and the March 31, 2025 collection. What is the effective interest rate on the note?arrow_forwardPROBLEMS Problem 2-1 (IAA) Miracle Company manufncturers a product that is packaged and sold. A plate is offered to customera sending in three wrappers nccompanied by a remittance of P10. Data with respect to the premium offer are summarized below. 2020 2021 Sales Purchane of premium, P50 per plate Number of plates distributed an premiuma Estimated number of plates to be distributed in subsequent period Distribution cost P20 per plate 3,600,000 390,000 5,000 4,200,000 580,000 9,000 2,000 3,000 Required: Prepare journal entries that would be made in 2020 and 2021 to record sales, premium purchases and redemptions, and year-end adjustments. Problem 2-2 (IAA) Cascade Company manufactures a special laundry soap. A towel is offered as a premium to customers who send in two proof-of-purchase seals from the soap boxes and a remittance of P20. Distribution cost is P5 per'towel. Data for the premium offer are. 2020 2021 Soap sales Towel purchases, P100 per towel Number of towels distributed as…arrow_forward31 PROBLEMS Problem 2-1 (IAA) Miracle Company manufacturers a product that is packaged and sold. A plate is offered to customers sending in three wrappers accompanied by a remittance of P10. of m Data with respect to the premium offer are summarized below. 2020 2021 3,600,000 390,000 5,000 4,200,000 580,000 9,000 Sales Purchase of premium, P50 per plate Number of plates distributed as premiums Estimated number of plates to be distributed in subsequent period Distribution cost P20 per plate 2,000 3,000 Required: Prepare journal entries that would be made in 2020 and 2021 to record sales, premium purchases and redemptions, and year-end adjustments.arrow_forward
- Trac 1 Post Meridian (PM) Co. uses the "installment sales method." PM Co. sells new merchandise costing P10,000 to a customer for P16,000. PM Co. accepts old merchandise with fair value of P3,000 as trade-in and gives the customer a trade-in value of P4,000. PM Co. subsequently collects P6,000 from the customer. Requirements: a. Prepare the journal entry to record the sale. b. Compute for the realized gross profit in the year of sale.arrow_forwardExercise 7 - 8 (Algo) Sales returns [LO7 - 4] Halifax Manufacturing allows its customers to return merchandise for any reason up to 90 days after delivery and receive a credit to their accounts. All of Halifax's sales are for credit (no cash is collected at the time of sale). The company began 2024 with a refund liability of $390,000. During 2024, Halifax sold merchandise on account for $ 13,300,000. Halifax's merchandise costs are 65% of merchandise selling price. Also during the year, customers returned $386,000 in sales for credit, with $213,000 of those being returns of merchandise sold prior to 2024, and the rest being merchandise sold during 2024. Sales returns, estimated to be 3% of sales, are recorded as an adjusting entry at the end of the year. Required: Prepare entries to (a) record actual returns in 2024 of merchandise that was sold prior to 2024; (b) record actual returns in 2024 of merchandise that was sold during 2024; and (c) adjust the refund liability to its…arrow_forwardNote 1 – Sale of product with right of return On 1 April 20X7 Delta sold a product to a customer for $121,000. This amount is payable on 30 June 20X9. The manufacturing cost of the product for Delta was $80,000. The customer had a right to return the product for a full refund at any time up to and including 30 June 20X7. At 1 April 20X7, Delta had no reliable evidence regarding the likelihood of the return of the product by the customer. The product was not returned by the customer before 30 June 20X7 and so the right of return for the customer expired. On both 1 April 20X7 and 30 June 20X7, the cash selling price of the product was $100,000. A relevant annual rate to use in any discounting calculations is 10%. Explain and show how the transactions in notes 1 and 2 would be reported in the financial statements of Delta for the year ended 30 September 20X7.arrow_forward