(Allocate Transaction Price, Discounts, Time Value)

Economy Appliance Co. manufactures low-price, no-frills appliances that are in

great demand for rental units. Pricing and cost information on Economy's main

products are as follows.

Item Standalone Selling Price (Cost)

Refrigerator $500 ($260)

Range 560 ($275)

Stackable washer/dryer unit 700 ($400)

Customers can contract to purchase either individually at the stated prices or a

three-item bundle with a price of $1,800. The bundleprice includes delivery and

installation. Economy also provides installation (not a separate performance

obligation).

Instructions

Respond to the requirements related to the following independent revenue

arrangements for Economy Appliance Co.

a.On June 1, 2019, Economy sold 100 washer/dryer units without installation

to Laplante Rentals for $70,000. Laplante is a newer customer and is

unsure how this product will work in its older rental units. Economy offers a

60-day return privilege and estimates, based on prior experience with sales

on this product, 4% of the units will be returned. Prepare the journal entries

for the sale and related cost of goods sold on June 1, 2019.

b.YellowCard Property Managers operates upscale student apartment

buildings. On May 1, 2019, Economy signs a contract with YellowCard for

300 appliance bundles to be delivered and installed inone of its new

buildings. YellowCard pays 20% cash at contract signing and will pay the

balance upon installation no later than August 1, 2019. Prepare journal

entries for Economy on (1) May 1, 2019, and (2) August1, 2019, when all

appliances are installed.

c.Refer to the arrangement in part (b). It would help YellowCard secure lease

agreements with students if the delivery and installation of the appliance

bundles can be completed by July 1, 2019. YellowCard offers a 10% bonus

payment if Economy can complete delivery and installation by July 1, 2019.

Economy estimates its chances of meeting the bonus deadlineto be 90%,

based on a number of prior contracts of similar scale. Repeat the

requirement for part (b), given this bonus provision. Assume installation is

completed by July 1, 2019.

d.Epic Rentals would like to take advantage of the bundle price for its 400-unit

project; on February 1, 2019, Economy signs a contract with Epic for 400

bundles. Under the agreement, Economy will hold the appliance bundles in

its warehouses until the new rental units are ready forinstallation. Epic pays

10% cash at contract signing. On April 1, 2019, Economy completes

manufacture of the appliances in the Epic bundle order and places them in

the warehouse. Economy and Epic have documented the warehouse

arrangement and identified the units designated for Epic. The units are

ready to ship, and Economy may not sell these units to other customers.

Prepare journal entries for Economy on (1) February 1, 2019, and (2) April

1, 2019.