Question
Brooklyn Inc. buys and sells swim spas that are used in homes across Ontario. The company follow ASPE. Unit selling prices range from $40,000 to
Brooklyn Inc. buys and sells swim spas that are used in homes across Ontario. The company follow ASPE. Unit selling prices range from $40,000 to $80,000.
Brooklyn Inc. sells a swim spa to the Lee family on April 15th, 2021. The selling price for this particular swim spa is usually $70,300. -
Brooklyn Inc. will also install the machine. The estimated fair value of installing the swim spa is $3,700.
Brooklyn Inc. sold the swim spa and installation to the Lee family for $65,000. The swim spa cost Brooklyn Inc. $32,000.
The Lee family is obligated to pay Brooklyn Inc. $20,000 upon delivery of the swim spa and the balance on June 1st.
Brooklyn Inc. delivers the swim spa on May 1st, 2021, and completes the installation of the swim spa on May 20th, 2021.
On June 1st the Lee family informs Brooklyn Inc. that they will be not be able to pay their account that is due. The two parties enter into an agreement that the account will be converted into a non-interest bearing promissory note to be repaid in one year from now. Brooklyn Inc. borrows funds at a rate of 4%. Lee family has various loans at 6% interest. The companys year end is December 31st.
i. List the performance obligations?
ii. Explain when the revenue should be recognized for each performance obligation under ASPE. Support your answer by explaining why it should be recognized at the time you selected. Hint use RCMP for criteria
iii. Prepare the journal entries for 2021 and 2022. If there is no entry be sure to state no entry. Hint remember to allocate the revenue among the different performance obligations and then use this information when you prepare the journal entries. In your answer do not use the account discount on notes.
iv. If the company followed IFRS when should the revenue be recognized for the sale of the swim spa and why? Be sure to list the criteria and apply it to the question.
| List the Performance Obligations | Fair value
| Percentage | Transaction/Selling Price | Revenue for each performance obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
|
|
| Performance Obligation | When Revenue Should be Recognized | Why? (use ASPE criteria) |
|
|
| |
|
|
| |
|
|
|
|
Journal Entries
|
| Account | Debit Amount | Credit Amount |
| April 15th | No Entry | 0 |
|
|
| No Entry |
| 0 |
| May 1st |
|
| |
|
|
|
| |
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| May 20th |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 1st |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dec 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 1st |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Accounting Texts and Cases
Authors: Robert Anthony, David Hawkins, Kenneth Merchant
13th edition
1259097129, 978-0073379593, 007337959X, 978-1259097126
