Intermediate Accounting: Reporting and Analysis (Looseleaf)
Intermediate Accounting: Reporting and Analysis (Looseleaf)
2nd Edition
ISBN: 9781285453859
Author: WAHLEN
Publisher: Cengage
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Chapter 17, Problem 5P

1.

To determine

Ascertain the transaction price and state the manner in which the sales commission must be accounted.

1.

Expert Solution
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Explanation of Solution

Transaction price:

Transaction price is the amount of consideration that is estimated by the company to be authorized in exchange, for delivering the promised goods and services to the customer. Transaction price is examined by the seller by analyzing the terms of the contract and the normally conducts of the business

  • Sales commission is capitalized as a “contract cost asset and amortized on a systematic basis consistent” with the probable pattern of transfer of the related goods or services under the contract, since the sales commission is an “incremental cost”. FASB ASC 340-40- 25-1 states that:
  • “An entity shall recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs”.
  • Only incremental must be identified as assets. “Incremental costs” of attaining a contract are those costs that would not have been incurred by the entity if the contract had not been obtained (i.e., sales commissions).

2.

To determine

Discuss if the delayed payment contract contains a significant financing contract.

2.

Expert Solution
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Explanation of Solution

Identifying a “significant financing component” in a contract needs judgment. It could be generally difficult in a long-term arrangement where a product or service delivery and cash payment takes place during the term of the contract. FASB ASC 606-10-32-19 states that:

“[W]hen adjusting the promised amount of consideration for a significant financing component, an entity shall use the discount rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception. That rate would reflect the credit characteristics of the party receiving financing in the contract, as well as any collateral or security provided by the customer or the entity, including assets transferred in the contract”.

3.

To determine

Journalize entries of Company O for the year 2017.

3.

Expert Solution
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Explanation of Solution

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.

Prepare journal entries:

DateAccount titles and ExplanationDebit ($)Credit ($)
January 2017Accounts receivable (1) 456,000 
      Sales revenue (2)  400,000
      Unearned interest ($456,000$400,000)  56,000
(To record the amount of  accounts receivable)
 Sales commission (3) 20,000 
      Cash 20,000 
  (To record the amount of sales commission)  
December 31,2017Unearned interest (4) 56,000 
      Interest revenue 56,000 
(To record the amount of unearned interest)
 Cash (5) 456,000 
      Accounts receivable 456,000 
(To record the amount of cash)
 Sales commission expense (3) 20,000 
      Sales commission  20,000 
(To record the amount of sales commission expense)

Table (1)

Working notes:

(1)Calculate the amount of accounts receivable:

Accountsreceivable=Numberofmachinessold×Salespricepermachine=10×$45,600=$45,600

(2)Calculate the amount of sales revenue:

Salesrevenue=(Numberofmachinessold×Paymentmadeduringdeliveryandinstallation)=10×$40,000=$400,000

(3)Calculate the amount of sales commission:

Salescommission=Salesrevenue×Pecentageofcommision=$400,000×5%=$20,000

(4)Calculate the amount of unearned interest:

Unearnedinterest=Percentageofinterest×Salesrevenue=14%×$400,000=$56,000

(5)Calculate the amount of cash:

Cash=Numberofmachinessold×Salespricepermachine=10×$45,600=$456,000

4.

To determine

Journalize entries of Company P for the year 2017

4.

Expert Solution
Check Mark

Explanation of Solution

Prepare journal entries:

DateAccount titles and ExplanationDebit ($)Credit ($)
January 2017Cash (6) 400,000 
      Sales revenue 400,000 
(To record the amount of  sales revenue)
 Sales commission expense (3) 20,000 
      Cash 20,000 
(To record the sales commission expense)

Table (2)

Working note:

(6)Calculate the amount of cash:

Cash=Numberofmachinessold×Paymentmadeduringdeliveryandinstallation=10×$40,000=$400,000

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Chapter 17 Solutions

Intermediate Accounting: Reporting and Analysis (Looseleaf)

Ch. 17 - Prob. 11GICh. 17 - Prob. 12GICh. 17 - Prob. 13GICh. 17 - Prob. 14GICh. 17 - Prob. 15GICh. 17 - Prob. 16GICh. 17 - If the standalone selling price of a good or...Ch. 17 - Prob. 18GICh. 17 - Prob. 19GICh. 17 - If the sellers performance creates on asset (e.g.,...Ch. 17 - Describe input and output methods used to measure...Ch. 17 - Prob. 22GICh. 17 - Prob. 23GICh. 17 - Prob. 24GICh. 17 - Prob. 25GICh. 17 - A company should recognize revenue when a. the...Ch. 17 - A contract between one or more parties creates: a....Ch. 17 - Morgan Company and its customer agree to modify...Ch. 17 - Chlorine Corp. has a contract to deliver pool...Ch. 17 - Prob. 5MCCh. 17 - Prob. 6MCCh. 17 - In accounting for a long-term construction...Ch. 17 - Prob. 8MCCh. 17 - Prob. 9MCCh. 17 - Prob. 10MCCh. 17 - CustomTee Inc. contracts with various customers to...Ch. 17 - Yankee Corp. agrees to provide Albany Company 24...Ch. 17 - Prob. 3RECh. 17 - Prob. 4RECh. 17 - Prob. 5RECh. 17 - Prob. 6RECh. 17 - VolleyElite runs a volleyball program consisting...Ch. 17 - Enterprise Solutions Inc. licenses its...Ch. 17 - Prob. 9RECh. 17 - Magical Memories sells Florida theme park vacation...Ch. 17 - Prob. 11RECh. 17 - Robotics Inc. contracts with a customer to build a...Ch. 17 - CoolShoes sells its elite tennis shoes to sports...Ch. 17 - Using the information in RE17-13, what journal...Ch. 17 - GameDay sells recreational vehicles along with...Ch. 17 - Prob. 16RECh. 17 - Using the information provided in RE17-16, prepare...Ch. 17 - Prob. 18RECh. 17 - Prob. 19RECh. 17 - Prob. 1ECh. 17 - Prob. 2ECh. 17 - Prob. 3ECh. 17 - Prob. 4ECh. 17 - Prob. 5ECh. 17 - Assume the same facts as in E17-5. On July 1,...Ch. 17 - Prob. 7ECh. 17 - Prob. 8ECh. 17 - Prob. 9ECh. 17 - Prob. 10ECh. 17 - Prob. 11ECh. 17 - Jonas Consulting enters into a contract to provide...Ch. 17 - Prob. 13ECh. 17 - Prob. 14ECh. 17 - Prob. 15ECh. 17 - Prob. 16ECh. 17 - Prob. 17ECh. 17 - Prob. 18ECh. 17 - Prob. 19ECh. 17 - Prob. 20ECh. 17 - Crazy Computer Store sells a back-to-school bundle...Ch. 17 - Each of the following is an independent situation...Ch. 17 - Prob. 23ECh. 17 - Prob. 24ECh. 17 - Prob. 25ECh. 17 - Prob. 26ECh. 17 - Prob. 1PCh. 17 - Prob. 2PCh. 17 - Prob. 3PCh. 17 - Prob. 4PCh. 17 - Prob. 5PCh. 17 - Prob. 6PCh. 17 - Prob. 7PCh. 17 - SoccerHawk Merchandise Inc. enters into a 6-month...Ch. 17 - Prob. 9PCh. 17 - Prob. 10PCh. 17 - Prob. 11PCh. 17 - Prior to ASU 2014-09 changing the principles...Ch. 17 - The first step in the revenue recognition process...Ch. 17 - Prob. 3CCh. 17 - One of the more difficult issues that companies...Ch. 17 - Prob. 5CCh. 17 - Prob. 6CCh. 17 - Prob. 7CCh. 17 - Prob. 8CCh. 17 - Revenue for a company is recognized for accounting...Ch. 17 - Prob. 10C
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