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16 April, 15:57

Riverbed Company sells goods that cost $320,000 to Ricard Company for $407,000 on January 2, 2020. The sales price includes an installation fee, which has a standalone selling price of $38,500. The standalone selling price of the goods is $368,500. The installation is considered a separate performance obligation and is expected to take 6 months to complete.

a. Prepare the journal entries (if any) to record the sale on January 2, 2020. (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 O for the amounts.)

b. Shaw prepares an income statement for the first quarter of 2020, ending on March 31, 2020 (installation was completed on June 18, 2020). How much revenue should Shaw recognize related to its sale to Ricard?

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  1. 16 April, 16:04
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    a) Journal entries to record the sale on January 2, 2020:

    Debit Accounts Receivable with $407,000

    Credit Sales Account with $368,500

    Credit Deferred Revenue (Installation Fee) with $38,500

    Being sales of goods and installation services.

    b) Income Statement for 1st Quarter of 2020

    Sales - $368,500

    Installation Fee - $19,250

    Total Income - $387,750

    less cost of sales - $320,000

    Net Income - $67,750

    c) The revenue Shaw should recognize in relation to the sale to Ricard is $387,750 (goods and accrued installation fee). The installation fee to be recognized is for 3 months only.

    Explanation:

    The installation fee is for 6 months. Therefore, 3 months' worth of fee will be recognized in the income statement ending on March 31, 2020.
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