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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Unearned Revenue and Customer Deposits

On November 20, 2019, Green Bay Electronics agreed to manufacture and supply 750 electronic control units used by Wausau Heating Systems in large commercial and industrial installments. On that date, Wausau deposited $250 per unit upon signing the 3-year purchase agreement, which set the selling price of each control unit at $1,000. Green Bay’s inventory cost is $225 per unit. No units were delivered during 2019. The first 200 units will be delivered in 2020, 300 units will be delivered during 2021, and the remaining units will be delivered during 2022. Assume Green Bay uses a perpetual inventory system, and Wausau pays in cash upon delivery of units for amounts not covered by the deposit.

Required:

1. CONCEPTUAL CONNECTION Prepare the entry by Green Bay to record receipt of the deposit during 2019. How would the deposit be reported in the financial statements at the end of 2019?

2. CONCEPTUAL CONNECTION Prepare the entry by Green Bay to record the delivery of 200 units during 2020. How would the deposit be reported in the financial statements at the end of 2020?

3. Prepare the entry by Green Bay to record the delivery of 300 units during 2021.

To determine

(a)

Introduction:

If the amount has been earned but the services are yet to be rendered or goods are yet to be delivered then the company records the revenue as unearned.

To show:

Journal entry for deposit and its affect in financial statement at 2019 year end.

Explanation

No. of units to be delivered = 750

Deposit received = $250 per unit

Total deposit received = $250×750 = $187,500

The manufactured units are yet to be supplied to the customer

To determine

(b)

Introduction:

If the amount has been earned but the services are yet to be rendered or goods are yet to be delivered then the company records the revenue as unearned.

To show:

Journal Entry for delivery of 200 units and its effect of on financial statement.

To determine

(c)

Introduction:

If the amount has been earned but the services are yet to be rendered or goods are yet to be delivered then the company records the revenue as unearned.

To show:

Journal Entry for delivery of 300 units and its effect of on financial statement.

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