Question

In September 2014, Gaertner Corp. commits to selling 150 of its iPhonecompatible docking stations to Better Buy Co. for $15,000 ($100 per product). The stations are delivered to Better Buy over the next 6 months. After 90 stations are delivered, the contract is modified and Gaertner promises to deliver an additional 45 products for an additional $4,275 ($95 per station). All sales are cash on delivery.

(a) Prepare the journal entry for Gaertner for the sale of the first 90 stations. The cost of each station is $54.
(b) Prepare the journal entry for the sale of 10 more stations after the contract modification, assuming
that the price for the additional stations reflects the standalone selling price at the time of the contract
modification. In addition, the additional stations are distinct from the original products as
Gaertner regularly sells the products separately.
(c) Prepare the journal entry for the sale of 10 more stations (as in (b)), assuming that the pricing for the
additional products does not reflect the standalone selling price of the additional products and the
prospective method is used.

Answer 1

Journal entries as follows: PR. No Date Account Title and Explanation Debit SCredit S a Cash (90 x $100 9,000 Sales Revenue o record the sale of the stations 9,000 Cost of Goods Sold (90x $54 4,860 4,860 Inventd o record the cost of goods sold b Cash 1,000 Sales Revenue (10 x $100 1,000 (To record the sale of additional stations Cost of Goods Sold (10x $54 540 Inventd o record the cost of goods sold 540 c Cash 979 Sales revenue 979 (To record the sale of additional stations Cost of Goods Sold (10x $54 540 Inventd 540 To record the cost of goods sold

Working notes: Product balance (150-90) 60 60x$100 $6,000 $6,000+S4,275-$10,275 Total product 60+45-105 Selling price per unit- $10,275/105-S97.86 Calculation of sale of 10additional stations $97.86-$97.9x10 $979