Question

A. (2096) 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 joumal 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:

Answer 1

In the books of ABC Corporation

Journal

Date Particulars l/f Amount(Dr) Amount(Cr)

Jan 15,2019 Cash a/c (175*5000) Dr 875000

To Sales a/c 875000

  (Being equipment sold for cash)

March 1,2019 Cash a/c (6000*240)    Dr 1440000

Discount allowed Dr 48000

To Sales a/c {240*(5000+1200)} 1488000

(Being equipments and maintenance

services sold at a discount)

April 15,2019 Sales return a/c (23*5000)    Dr 115000

To Cash 115000

(Being equipments returned and

refund made to customers)

July 1,2019 Cash a/c Dr 144000

To Sales a/c(120*1200) 144000

(Being maintenance services sold)

Calculation of Gross Profit:-

Gross profit =( Sales -sales return) + Closing inventory  - opening inventory-  cost of acquisition

Gross profit = 2507000-115000 +(2200*23) - {(240+175)*2200} = 1529600

note-since the units in closing inventory is not available in the question we assume the equipments returned are the only closing inventory.