Question

nce obligation(s) would ho egb 0 nitie AP4-2A (Revenue recognition) TreeHold Corp. designs and builds custom harvesting equipment for logging companies across Canada. The company, which is publicly traded, has a May 31 year end. On February 18, 2020, TreeHold signed a contract with Coastal Harvesting Ltd, to design and build 25 custom harvesters that can harvest wood at the steep grades found along much of the Pacific coast timber stands included in Coastal's harvesting leases. The following events took place in 2020 in relation to the contract: 1. February 18: Officials from TreeHold and Coastal sign the contract. The contract was for $4.1 million. TreeHold is to design, manufacture, and deliver the 25 machines to Coastal's operations centre in Duncan, British Columbia. TreeHold's management estimates that the design component of the contract would be valued at $510,000 if contracted for separately, while the machine construction component of the contract would be valued at $4 million if the machines were purchased sepa- rately. TreeHold agrees to provide a three-year assurance-type warranty for the machines, and the company's management estimates that the warranty claims would total $230,000 based on past experience. Coastal agrees to pay a $1,250,000 deposit within 10 days of signing the contract and to pay the balance within 15 days of the equipment being delivered. 2. February 25: Coastal pays the deposit specified in the contract. 3. March 28: TreeHold's engineering staff complete the equipment design and it is approved by officials from Coastal. T-HooO .0000 4. May 18: TreeHold completes construction of the 25 harvesters. 5. May 20: The 25 harvesters are loaded onto TreeHold's trucks and are delivered to Coastal's opera- tion centre in Duncan later that day. 000,4E banu 6. June 2: Coastal pays the balance owing on the contract. 0000 000 012 00 Required a. Using the five-step model for revenue recognition, determine when and how much revenue Tree- Hold would be able to recognize for the year ended May 31, 2020. Round percentages to the nearest two decimal places. b. Prepare TreeHold's required journal entries for all of the dates appearing above along with any other necessary journal entries for the contract based on your analysis in part "a."

Answer 1

Determination of revenue recognition of the Treehold Corp By using the five-step model
	Amount in $	% of revenue recognised
The total contact value is	4100000
Mar-28	510000	12.44	Since the company completed the separate performance
			Obligation of design of the machines.
May-18	3590000	87.56	Balance amount of the contract since the obligation
			of construction of 25 harvesters completed
The following are the Journal entries
Particulars	Debit($)	Credit($)
Feb-25
Cash	1250000
Advance from customers(Current liabilites)		1250000
Mar-28
Advance from customers(Current liabilites)	510000
Revenue from design services		510000
May-18
Advance from customers(Current liabilites)	740000
Coastal Harvesting Limited	2850000
Revenue from construction of machines		3590000
May-20
Warranty expense	230000
Accured warranty liability		230000
Jun-02
Cash	2850000
Coastal Harvesting Limited		2850000