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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 December 10, 2019, Kool-Air Solutions agreed to manufacture and supply 800 refrigerators used by Vandelay Industries. Vandelay deposited $150 per unit upon signing the 3-year purchase agreement, which set the selling price of each refrigerator at $950. Kool-Air’s inventory cost is $425 per unit. No units were delivered during 2019. During 2020, 175 units will be delivered; during 2021, 325 units will be delivered; and during 2022, the remaining units will be delivered. Assume Kool-Air uses a perpetual inventory system and Vandelay pays in cash upon delivery of units for amounts not covered by the deposit.

Required:

1. CONCEPTUAL CONNECTION Prepare the entry by Kool-Air 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 Kool-Air to record the delivery of 175 units during 2020. How would the deposit be reported in the financial statements at the end of 2020?

3. Prepare the entry by Kool-Air to record the delivery of 325 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 = 800

Deposit received = $150 per unit

Total deposit received = $150×800 = $120,000

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 175 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 325 units and its effect of on financial statement.

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