E18-9 (Allocate Transaction Price) Sanchez Co. enters into a contract to sell Product A and Product B on January 2, 2015, for an upfront cash payment of R$150,000. Product A will be delivered in 2 years (January 2, 2017) and Product B will be delivered in 5 years (January 2, 2020). Sanchez Co. allocates the R$150,000 to Products A and B on a relative standalone selling price basis as follows. Product A Product B Standalone Selling Prices R$ 40,000 120,000 R$160,000 Percent Allocated 25% 75% Allocated Amounts R$ 37,500 112,500 R$150,000 Sanchez Co. uses an interest rate of 6%, which is its incremental borrowing rate. Instructions (a) Prepare the journal entries necessary on January 2, 2015, and December 31, 2015. (b) Prepare the journal entries necessary on December 31, 2016. (c) Prepare the journal entries necessary on January 2, 2017.

E18-9 (Allocate Transaction Price) Sanchez Co. enters into a contract to sell Product A and Product B on January 2, 2015, for an upfront cash payment of R$150,000. Product A will be delivered in 2 years (January 2, 2017) and Product B will be delivered in 5 years (January 2, 2020). Sanchez Co. allocates the R$150,000 to Products A and B on a relative standalone selling price basis as follows. Product A Product B Standalone Selling Prices R$ 40,000 120,000 R$160,000 Percent Allocated 25% 75% Allocated Amounts R$ 37,500 112,500 R$150,000 Sanchez Co. uses an interest rate of 6%, which is its incremental borrowing rate. Instructions (a) Prepare the journal entries necessary on January 2, 2015, and December 31, 2015. (b) Prepare the journal entries necessary on December 31, 2016. (c) Prepare the journal entries necessary on January 2, 2017.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.

Question

E18-9 (Allocate Transaction Price) Sanchez Co. enters into a contract to sell Product A and Product B on
January 2, 2015, for an upfront cash payment of R$150,000. Product A will be delivered in 2 years (January
2, 2017) and Product B will be delivered in 5 years (January 2, 2020). Sanchez Co. allocates the R$150,000 to
Products A and B on a relative standalone selling price basis as follows.
Product A
Product B
Standalone
Selling Prices
R$ 40,000
120,000
R$160,000
Percent
Allocated
25%
75%
Allocated
Amounts
R$ 37,500
112,500
R$150,000
Sanchez Co. uses an interest rate of 6%, which is its incremental borrowing rate.
Instructions
(a) Prepare the journal entries necessary on January 2, 2015, and December 31, 2015.
(b) Prepare the journal entries necessary on December 31, 2016.
(c) Prepare the journal entries necessary on January 2, 2017.

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