Question

On July 3 I, O'Malley Company contracted to have two products built by Taylor Manufacturing for a total of $370,000. The contract specifies that payment will only occur after both products have been transferred to O'Malley Company. Taylor determines that the standalone prices are $200,000 for Product I and $ I 70,000 for Product 2. On August I, when Product I has been transferred, Taylor's journal entry to record this event includes

a. debit to Accounts Receivable for $200,000.

b. debit to Accounts Receivable for $170,000.

c. debit to Contract Assets for $170,000.

d. debit to Contract Assets for $200,000

Answer 1

Here answer is d. Debit to Contract Assets for $200000

If sales are conditional subject to fulfillment of some future obligation in that case we debit contract assets instead of account receivable as in this case payments only becomes due after both the two products are manufactured and delivered so after completion of product 1 and delivery of the same on 1st August, Contract Asset will be debited with $200000

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