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Sanchez Co. enters into a contract to sell Product A and Product B on January 2, 20x5, for an upfront cash payment of 300,000. Product A will be delivered in 2 years (January 2, 20x7) and Product B will be delivered in 5 years (January 2, 2020). Sanchez Co. allocates

Sanchez Co. enters into a contract to sell Product A and Product B on January 2, 20x5, for an upfront cash payment of 300,000. Product A will be delivered in 2 years (January 2, 20x7) and Product B will be delivered in 5 years (January 2, 2020). Sanchez Co. allocates

FINANCIAL ACCOUNTING
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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Sanchez Co. enters into a contract to sell Product A and Product B on January 2, 20x5, for an upfront cash payment of 300,000. Product A will be delivered in 2 years (January 2, 20x7) and Product B will be delivered in 5 years (January 2, 2020). Sanchez Co. allocates the 300,000 to Products A and B on a relative standalone selling price basis as follows.

  Standalone Selling Price Percent Allocated Allocated Amount
Product A 80,000 25% 75,000
Product B 240,000 75% 225,000
  320,000   300,000


Sanchez Co. uses an interest rate of 6%, which is its incremental borrowing rate.
INSTRUCTIONS
1. (a) Prepare the journal entries necessary on January 2, 20x5, and December 31, 20x5
2. (b) Prepare the journal entries necessary on December 21, 20x6.
3. (c) Prepare the journal entries necessary on January 2, 20x7

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