Question

Pharoah Company sells goods that cost $320,000 to Flounder Company for $405,000 on January 2, 2020. The sales price includes an installation fee, which is valued at $33,200. The fair value of the goods is $381,800. The goods were delivered on March 1, 2020. Installation is considered a separate performance obligation and was completed on June 18, 2020. Under the terms of the contract, Flounder Company pays Pharoah $262,000 upon delivery of the goods and the balance at the completion of the installation.

1) Using the five-step process for revenue recognition, determine when and how much revenue would be recognized by Pharoah. Assume IFRS is followed.

Performance Obligation	When?	How much?
Deliver goods
Installation

2) Prepare the journal entries for Pharoah on January 2, March 1, and June 18, 2020

Answer 1

Solution:

Performance Obligation Deliver goods Installation When? How much? Mar-01 262000 Jun-18 143000

Debit Credit 405000 Journal Entries Date Account Titles Jan-02 Accounts Receivable Sales Revenue Unearned Service Revnue (To record the sale and the service to be provided) 371800 33200 320000 Cost of Goods Sold Inventory (To record the cost of goods sold) 320000 262000 Mar-01 sh Accounts Receivable (To record the part payment received) 262000 Jun-18 Cash 143000 Unearned Service Revenue 33200 Accounts Receivable Service Revenue (TO record the receipt of balance cash and installation service provided) 143000 33200

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