ABC Corporation sells industrial equipment. The equipment can
be
sold independently or combined with maintenance service. In
addition, ABC
provides maintenance service independently from the sale of the
equipment.
During 2019 the following transactions take place:
1. On January 15, 175 pieces of equipment are sold. The selling
price of the
equipment is €5,000 per unit, while the acquisition cost of
equipment to ABC
is €2,200 per unit.
2. On Mach 1, 240 pieces of equipment combined with 3 years
maintenance are
sold. The combined price for equipment and the 3-year maintenance
service is
€6,000 per sale contract. The stand-alone price of the equipment is
€5,000 per unit, while the acquisition cost of equipment to ABC is
€2,200 per unit. The
maintenance service is sold independently for €1,200 per service
contract.
3. On April 15, 23 pieces of equipment sold independently on
January 15
(transaction 1) are returned from the customers. Although the firm
does not
adopt a refund policy, in this case fully refunds its
customers.
4. On July 1, ABC signed 120 contracts to provide 3 years
maintenance services.
The stand-alone price of the maintenance contract is €1,200.
5. The net realizable value of ending inventory at December 31,
2019 is €4,200
per unit.
Required: Prepare the journal entries that correspond to the
above transactions. In
addition, prepare the journal entry for the determination the gross
profit of ABC for
2019. Assume that all transactions are in cash. ABC’s accounting
period starts on
January 1 and ends on 31 December of each year.
Additional information:
-The firm uses a perpetual inventory system.
- Assume that the maintenance service is provided linearly during
the 3 years period.
The journal entries:
On January 15,
Debtors account Debit 875000
Sale of equipments Credit 875000
COGS account Debit 385000
Equipments account Credit 385000
On March 1, it is assumed that the maintenance service revenue is accrued once every year.
Debtors account Debit 1266667
Sale of equipment Credit 1200000
Sale of maintenance service Credit 66667
COGS account Debit 528000
Equipments account Credit 528000
On April 15,
Sales return (equipment) Debit 115000
Debtors account Credit 115000
Equipments account Debit 50600
COGS account Credit 50600
On July 1,
Debtors account Debit 24000
Sale of maintenance service Credit 24000
On December 31,
Depending upon the closing inventory quantity, Equipments account will be debited and Other Comprehensive Income account will be credited for the net realisable value being $ 2000 per unit above $ 2200 per unit purchase price.
Sale of Equipment Debit 2075000
Sale of maintenance service Debit 90667
COGS account Credit 862400
Sales return (equipment) Credit 115000
Gross Profit Credit 1188267
It is assumed that the actual expenditure on maintenance contracts mentioned in the question is nil as no expense information provided.
ABC Corporation sells industrial equipment. The equipment can be sold independently or combined with maintenance service....
ABC Corporation sells industrial equipment. The equipment can be sold independently or combined with maintenance service. In addition, ABC provides maintenance service independently from the sale of the equipment. During 2019 the following transactions take place: 1. On January 15, 175 pieces of equipment are sold. The selling price of the equipment is €5,000 per unit, while the acquisition cost of equipment to ABC is €2,200 per unit. 2. On Mach 1, 240 pieces of equipment combined with 3 years...
ABC Corporation sells industrial equipment. The equipment can be sold independently or combined with maintenance service. In addition, ABC provides maintenance service independently from the sale of the equipment. During 2019 the following transactions take place: 1. On January 15, 175 pieces of equipment are sold. The selling price of the equipment is €5,000 per unit, while the acquisition cost of equipment to ABC is €2,200 per unit. 2. On Mach 1, 240 pieces of equipment combined with 3 years...
A. (2096) ABC Corporation sells industrial equipment. The equipment can be sold independently or combined with maintenance service. In addition, ABC provides maintenance service independently from the sale of the equipment During 2019 the following transactions take place: 1. On January 15, 175 pieces of equipment are sold. The selling price of the equipment is €5,000 per unit, while the acquisition cost of equipment to ABC is €2,200 per unit. 2. On Mach 1, 240 pieces of equipment combined with...
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