Question
Entity A is a Hong Kong-based limited company that participates in building material industry for many years. It sells high-quality raw materials to different local
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Entity A is a Hong Kong-based limited company that participates in building material industry for many years. It sells high-quality raw materials to different local and foreign manufacturers. Entity B is one of its loyal customers for more than 30 years.
On 1 January 2019, Entity A received advanced payment of $3,845,000 from Entity B through the Hong Kong City Bank for selling Material X. According to the contract terms, Entity A would only deliver Material X to Entity B on 31 December 2019. The regular cash-selling price of Material X was $3,845,000. The cost of sales of Material X was $2,856,000.
On 1 January 2020, Entity A entered into another contract with Entity B. This contract stated that Entity A was required to transfer Material Y and Material Z to Entity B in exchange for $658,550. According to the contract terms, Entity A could invoice this full amount on 31 January 2020. Material Y was to be delivered on 28 February 2020 and Material Z was to be delivered on 31 March 2020. Both promises to transfer Material Y and Material Z were identified as separate performance obligations. The amount of $258,000 was allocated to Material Y and $400,550 to Material Z. The costs of sales of Material Y and Material Z were 75% and 80% of their selling prices respectively. Entity A received a crossed cheque from Entity B of Material Y and Material Z on 30 April 2020.
The market interest rates for the year of 2019 and 2020 were 5.50% and 6.75% respectively. Entity A adopts perpetual inventory system for keeping its inventory accounting records. Entity A recognises revenue when control of each material transfers to Entity B.
REQUIRED:
Provide journal entries for Entity A from 1 January 2019 to 30 April 2020 in accordance with the relevant accounting standards.
ACCOUNT NAMES FOR INPUT:
| Plant | Machine | Motor van | Equipment | Land | Building | Inventory | Intangible assets |
| Bank | Payable | Receivable | Other income | Other expense | Interest expense | Interest revenue |
| Depreciation | Accum. depreciation | Impairment loss | Reversal of impairment loss | Goodwill |
| Loss on disposal | Gain on disposal | Restoration liability | Revaluation surplus | Revaluation deficit |
| Asset for product to be returned | Commission expense | Commission revenue | Revenue |
| Cost of sales | Refund liability | Contract asset | Contract liability | Retained earnings | No entry |
ANSWERS:
Journal Entries:
Date Account Name Debit ($) Credit ($) Hints For Sequence 1-Jan-19 Blank 1 Blank 2 Blank 3 Blank 4 31-Dec-19 Blank 5 Blank 6 Blank 7 Blank 8 Judge Dr/Cr side Blank 9 Blank 10 Judge Dr/Cr side Blank 11 Blank 12 Judge Dr/Cr side Blank 13 Blank 14 Judge Dr/Cr side Blank 15 Blank 16 Judge Dr/Cr side 1-Jan-20 Blank 17 Blank 18 Blank 19 Blank 20 31-Jan-20 Blank 21 Blank 22 Blank 23 Blank 24 28-Feb-20 Blank 25 Blank 26 Blank 27 Blank 28 Judge Dr/Cr side Blank 29 Blank 30 Judge Dr/Cr side Blank 31 Blank 32 Judge Dr/Cr side 31-Mar-20 Blank 33 Blank 34 Blank 35 Blank 36 Judge Dr/Cr side Blank 37 Blank 38 Judge Dr/Cr side Blank 39 Blank 40 Judge Dr/Cr side 30-Apr-20 Blank 41 Blank 42 Blank 43 Blank 44
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