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.
Basic Journal entries
Gross Profit determination journal entries
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...
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