Question

Pearl Windows manufactures and sells custom storm windows for three-season porches. Pearl also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Pearl enters into the following contract on July 1, 2020, with a local homeowner. The customer purchases windows for a price of $2,360 and chooses Pearl to do the installation. Pearl charges the same price for the windows irrespective of whether it does the installation or not. The installation service is estimated to have a standalone selling price of $570. The customer pays Pearl $2,100 (which equals the standalone selling price of the windows, which have a cost of $1,110) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2020, Pearl completes installation on October 15, 2020, and the customer pays the balance due. Pearl estimates the standalone selling price of the installation based on an estimated cost of $430 plus a margin of 10% on cost. Prepare the journal entries for Pearl in 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.If no entry is required, select "No entry" for the account titles and enter O for the amounts. Round answer to O decimal places, es 5,125.) Given uncertainty of finding skilled labor, Pearl is unable to develop a reliable estimate for the standalone selling price of the installation. Prepare the journal entries for Pearl in 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts.)

Answer 1

Revenue allocated:
					Fair value	% of total fair value	Total sales value	Revenue allocated
						a	b	a*b
Windows					2100	81.94%	2360	1934
Installation			(Note:1)		463	18.06%	2360	426
					2563			2360
Note:1
Stand alone price of installation=Estimated cost+10%=430+10%=430+43=$ 463
Journal entries:
Date	Account titles and explanation					Debit	Credit
July 1,2020	No entry required since there is no delivery or payment
Sep 1,2020	Cash					2100
	Accounts receivable			(2360-2100)		260
	Unearned revenue-Installation						426
	Sales revenue						1934
	(Sales recorded)
Sep 1,2020	Cost of goods sold					1110
	Merchandise inventory						1110
	(Cost of windows sold recorded)
Oct 15,2020	Cash					260
	Unearned revenue-Installation					426
	Accounts receivable						260
	Service revenue-Installation						426
	(Customer paid the balance due)
If pearl is unable to develop a reliable estimate of the standalone selling price of the installation,use residual method
Standalone selling price of installation=Total contract price-Standalone selling price of windows=2360-2100=$ 260
Journal entries:
Date	Account titles and explanation					Debit	Credit
July 1,2020	No entry required since there is no delivery or payment
Sep 1,2020	Cash					2100
	Accounts receivable			(2360-2100)		260
	Unearned revenue-Installation						260
	Sales revenue						2100
	(Sales recorded)
Sep 1,2020	Cost of goods sold					1110
	Merchandise inventory						1110
	(Cost of windows sold recorded)
Oct 15,2020	Cash					260
	Unearned revenue-Installation					260
	Accounts receivable						260
	Service revenue-Installation						260
	(Customer paid the balance due)