Question

Furniture Land Inc. is a producer and retailer of high-end custom-designed furniture and uses the contract-based approach to revenue recognition. The company produces only to special order and requires a one-third down payment before any work begins. The customer is then required to pay one-third at the time of delivery and the balance within 30 days after delivery It is now February 1, 2020, and Furniture Land has just accepted $3,600 as a down payment from H. Gooding, a wealthy stockbroker. Per the contract, Furniture Land is to deliver the custom funiture to Gooding's residence by June 15, 2020. Gooding is an excellent customer and has always abided by the contract terms in the past. If Furniture Land cannot make the delivery by June 15, the contract terms state that Gooding has the option of cancelling the sale and receiving a full reimbursement of any down payment. It is estimated that Furniture Land's cost to design and manufacture the furniture ordered by Gooding will be $7,560. As Furniture Land's accountant, prepare all journal entries related to the sale. Assume that revenue is recognized at the time of delivery. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Date Credit (To record the cash collected in advance) June 15 (To record the sale of furniture) (To record the costs related to the design and manufacturing of the custom furniture) (To record the collection on account)

Answer 1

Terms of Sales
1/3 down payment
1/3 at delivery
Remaining within 30 days after delivery
1/3 down payment		$3600
Total sales value [$3600 x 3]		$10,800
Date	Account Title	Debit	Credit
Feb 1	Cash	$3600
	Deferred Sales Revenue		$3600
	(To record cash received in advance)
June 15	Cash	$3600
	Deferred Sales Revenue	$3600
	Accounts Receivable	$3600
	Sales Revenue		$10,800
	(To record sale of furniture)
June 15	Cost of good sold	$7560
	Inventory		$7560
	(To record cost of good sold)
July 15	Accounts Receivable	$3600
	Cash		$3600
	(To record the collection on account)