Ace Enterprises manufactures specialized medical equipment. Premium Health purchases equipment from Ace on October 15, 2021 for $500,000. This price includes installation. Using available information, Ace determines that the installation service is estimated to have a fair value of $30,000. The sale price of the equipment without installation would be $490,000. The cost of the equipment is $300,000.

Premium has agreed to pay Ace $400,000 upon delivery of the equipment and the balance when the equipment is installed.

Ace delivers the equipment on November 15, 2021 and completes installation on November 30, 2021.

Required:

Answer this question using IFRS revenue recognition (five-step process) criteria and the CPA Handbook. Create a table with 3 columns as follows:

Step

CPA Handbook section and paragraph

Analysis using question information

1. Using the format as in the table above and the five step process for revenue recognition, determine when and how much revenue would be recognized by Ace.
2. Prepare the journal entries for Ace.

Question Two

Appliance Plus sold 1,000 refrigerators during 2021 at a total price of $ 1,620,000, with a warranty guarantee that the product was free from any defects. The cost of the refrigeratetors sold was $ 1,080,000. The term of the assurance warranty is one year, with an estimated cost of $ 10,000. In addition, Appliance Plus sold extended warranties on 600 refrigerators for four years beyond the one-year period for $ 210,000.

Instructions

Prepare the journal entries to record the sale and related warranties for 2021.