Question

Intermediate 2 Terry Part #2: Chapter 18 Goal: To practice correcting the financial statements for different revenue recognition situations. (See Topic Guides IFO 4 and 23). Information: Terry determined early in its history that it was more effective for them to build their own specialized production equipment than for them to share their proprietary production data with a construction company. While this process leads to a larger upfront cost for new equipment, the special production methods used by the company have earned much more than the initial extra outlay. While the company has historically kept this production process in-house, they have recently been approached by a local university with a request to provide a set of machinery that the university can use to produce their own specialty bags. Since many members of Terry's Board of Directors (and several large shareholders) are alumni of this university, Terry's management has decided that they will go through with the sale of a three machine system to the university. As part of the deal, Terry's management has insisted that the university also purchase a 3-year maintenance contract (which will begin as soon as the last machine is installed). This requirement will allow Terry's engineers and machinists to take care of the equipment, reducing the chance of losing their competitive advantage. The total contract price for the machines and the maintenance contract is $660,000.

Answer 1

Ans:- (2) Deliverable in Contracts Machine-1 Machine- Machine-3 Maintanance Contract Market value ofl each deliverable $165,000 $130,000 $ 300,000 $ 72,000 $ 6,67,000 Fair value allocation of each deliverable $ 163,268 $ 128,636 $ 296,852 $ 71,244 $ 660,000 Total Journal Entries S No Account Debil Credit University Ale $ 291, 904 Revenue from Machine Sales $2,91,904 (Revenue of machine 1&2 installa ions on basis of four value) Cash Ale $ 293.000 $293,000 University Ale (Being receipt of cash) Cost of machine sold account $249,000 Inventory $249,000 (Being issue of machine 122 costing 1,32,000 & 117,000 respectively from inventory)