Question

Exercise 18-12 Shaw Company sells goods that cost $300,000 to Ricard Company for $410,000 on January 2, 2020. The sales price includes an installation fee, which has a standalone selling price of $40,000. The standalone selling price of the goods is $370,000. The installation is considered a separate performance obligation and is expected to take 6 months to complete. (a) Prepare the journal entries (if any) to record the sale on January 2, 2020. (Credit account tities are automatically indented when 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.) Debit Credit Date Account Titles and Explanation Jan. 2, 2020 (To record sales on account) Jan. 2, 2020 (To record cost of goods aold) (b) Shaw prepares an income statement for the first quarter of 2020, ending on March 31, 2020 (installation was completed on June 18, 2020). How much revenue should Shaw recognize related to its sale to Ricard? First Quarter Sales Revenue Cost of Goods Sold Gross Profit

Answer 1

Credit ($) Debit ($) 410,000 Journal Account Titles and Explanation 2-Jan Accounts receivable Sales revenue Unearned service revenue (To record the sales on account) 370,000 40,000 300,000 2-Jan Cost of goods sold Inventory (To record cost of goods sold) 300,000 Explanation: Since the intallation service will be performed in 6 months thus it cannot be recognised as revenue now. It will be considered as an unearned revenue. $ First Quarter Sales revenue Cost of goods sold Gross profit $ 370,000 (300,000) 70,000 Explanation: Income statement is prepared on 3/31/2020 which is before the installation service is performed. Thus installation fee will go in the balance sheet under current liabilites as unrecognised revenue. It cannot come in the income statement as it is still not recognised as revenue as on 3/31/2020. Please give as many likes for the hard work.