Red Maple Co. enters into a contract to sell Product Y and Product Z on January 2, 2021, for an upfront cash payment of $150,000. Product Y will be delivered in two years (January 2, 2023) and Product Z will be delivered in five years (January 2, 2026). Red Maple Co. allocates the $150,000 to Products Y and Z on a relative stand-alone selling price basis as follows. Stand-Alone Selling PricesPercent AllocatedAllocated AmountsProduct Y$ 40,00025%$ 37,500Product Z120,00075%112,500 $160,000 $150,000 Red Maple Co. uses an interest rate of 6%, which is its incremental borrowing rate.RequiredPrepare the journal entries needed on January 2, 2021, and December 31, 2021.Prepare the journal entry needed on December 31, 2022.Prepare the journal entry needed on January 2, 2023.Using Excel or a financial calculator, calculate the amount of revenue to be recognized for Product Z and prepare the journal entry needed on January 2, 2026.

Step 4: January 2, 2023 (Delivery of Product Y)Product Y is delivered, and the $37,500 allocated to…

Answered: Red Maple Co. enters into a contract to…

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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Question

Red Maple Co. enters into a contract to sell Product Y and Product Z on January 2, 2021, for an upfront cash payment of $150,000. Product Y will be delivered in two years (January 2, 2023) and Product Z will be delivered in five years (January 2, 2026). Red Maple Co. allocates the $150,000 to Products Y and Z on a relative stand-alone selling price basis as follows.

	Stand-Alone Selling Prices	Percent Allocated	Allocated Amounts
Product Y	$ 40,000	25%	$ 37,500
Product Z	120,000	75%	112,500
	$160,000		$150,000

Red Maple Co. uses an interest rate of 6%, which is its incremental borrowing rate.

Required

Prepare the journal entries needed on January 2, 2021, and December 31, 2021.
Prepare the journal entry needed on December 31, 2022.
Prepare the journal entry needed on January 2, 2023.
Using Excel or a financial calculator, calculate the amount of revenue to be recognized for Product Z and prepare the journal entry needed on January 2, 2026.

Expert Solution