Question

On June 1, 2017, Flint Company sells $211,000 of shelving units to a local retailer, ShopBarb, which is planning to expand its stores in the area. Under the agreement, ShopBarb asks Flint to retain the shelving units at its factory until the new stores are ready for installation. Title passes to ShopBarb at the time the agreement is signed. The shelving units are delivered to the stores on September 1, 2017, and ShopBarb pays in full. Prepare the journal entries for this bill-and-hold arrangement (assuming that conditions for recognizing the sale as a bill-and-hold sale have been met) for Flint on June 1 and September 1, 2017. The cost of the shelving units to Flint is $115,000.

Answer 1

01 june 2017

Debit. Credit

  Accounts receivable. $211000

Sales. $211000

A common problem with bill and hold transactions is that the sale is recorded, but the subtraction from inventory of the items sold is not, resulting in a sale with a 100% gross
margin. To avoid this, use the following journal entry to shift the sold inventory items into a special cost of goods sold account that clearly identifies the items sold

Cost of goods sold—bill and hold $115000
Inventory. $115000

When the items are eventually shipped to the customer, the third journal entry is used to shift the expense into the regular cost of goods sold account. By using this approach, one
can monitor the “Cost of Goods Sold—Bill and Hold” account to determine which billed inventoryi have not yet been shipped.

01 September 2017

Cost of goods sold $115000
Cost of goods sold—bill and hold $115000