Question
Bonita Windows manufactures and sells custom storm windows for three-season porches. Bonita also provides installation service for the windows. The installation process does not involve
Bonita Windows manufactures and sells custom storm windows for three-season porches. Bonita also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Bonita enters into the following non-cancellable contract on July 1, 2017, with a local homeowner. The customer purchases windows for a price of $4,000 and chooses Bonita to do the installation. Bonita charges the same price for the windows regardless of whether it does the installation or not. The price of the installation service is estimated to have a fair value of $546. The customer pays Bonita $3,600 (which equals the fair value of the windows, which have a cost of $1,100) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2017, Bonita completes installation on October 15, 2017, and the customer pays the balance due. a)Prepare the journal entries for Bonita in 2017 assuming Bonita estimates the stand-alone value of the installation based on an estimated cost of $500 plus a margin of 20% on cost. b)Prepare the journal entries for Bonita in 2017 given the uncertainty of finding skilled labour, Bonita is unable to develop a reliable estimate for the fair value of the installation.
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