problem 74

Chapter 7 Revenue Recognition 7-62 On August 1, 2020, a retailer enters into an arrangement with a customer to sell 10 items for $2,000 ($200 per sem) over a four-month period. During August and September of 2020, the retailer sold 5 of the 10 items to the Under a Contract customer. On October 1,2020, the contract is modified to include 8 additional items, with a transaction price of Modification LO7 s250 per item. Because the additional items have added features, the standalone selling price of the additional tems is $250 per iiem at the date of the contract modification. Exercise 7-74 Required d. Describe how the retailer should account for the contract modification. Determine the amount of revenue per unit to be recognized for the remaining units (the 5 under the original contract and the 8 under the contract modification) to be sold under the revenue contract(s) Smith Manufacturing Inc. sells $250,000 of equipment to a customer on August 15, 2020, and the equipment is prepared to ship on that date. However, Smith Manufacturing Inc. receives a last minute request from the cuslication tomer to hold the shipment for 15-45 days due to delay in construction of a facility where the new equipment and Recogntion will be installed. The equipment is customized for the customer, and it cannot be used for any other purposes Smith bills the customer on August 15, 2020, with payment due in 30 days. The equipment was shipped to the customer on September 8, 2020. Required a. How would this type of revenue contract be classified? Explain. b. At what date is revenue recognized by Smith Manufacturing for the sale of equipment? n January 1, 2020. Miller Inc. sells equipment to Snith Inc. for SSS0. As stipulated in the revenue contract Exercise 775 Miller Inc. will buy back the equipment on December 31, 2020 for SSRSS0. The relevant interest rate is 7%-R on ing Under Different Required a. Prepare the seller's journal entry on January 1, 2020 b. Prepare the seller's journal entry on December 31, 2020. c. Assume instead that Miller has the option to buy back the equipment and the fair value of the equipment is Agreements LO8 expected to decline through 2020. How would the answers to parts a and b change (if at all? d. Assume instead that Smith has the option to require Miller to buy back the equipment after one year for $58,850 (an amount greater than the expected market value of the equipment at that time). How would the answers to parts a and b change (if at all)? On March 15, 2020, Drexel Corp. provides goods to a retailer throa ownership of the goods until the goods are sold to the retailer's customer. Sale to the final customer is docu Recording Revenue mented when the goods are scanned at the cash register of the retailer. Drexel Corp, receives a daily report on the number of units sold by the retailer to the end customer. Any unsold product can be returned to Drexel Corp. at Arrangement LO anytime. Drexel Corp, has the right through the contract to recall any goods shipped and to transfer the goods to another retailer as a way to increase the rate of sales to the final customer. After the sale of the products to the final customer, the retailer cannot return the items to Drexel Corp. During March of 2020, Drexel Corp. transferred 1,200 units to the retailer, and the retailer sold 1,000 units. The product cost Drexel Corp. $80 per unit and the product was sold for $115 per unit to the end customer. The retailer sent a payment to Drexel Corp. for the cash collected on the sale of product less a 10% commission on April 7, 2020 Required signment where Drexel Corp. retains Exercise 7-77 and Recevables Under a Consignme a. At what date should Drexel Corp. recognize revenue? Explain , Record Drexel's entries on March 15, 2020, March 31, 2000, and April 7, 2020. Exercise 7-78 the requirements for each of the following separate On December 31, 2020. Quality Wholesalers Inc. sold merchandise the merchandise is clearly segregated in Wholesalers Inc.'s 30 Deermining Type Revenue Arranger to the and the Timing or distribation center, ready for shipment to not scheduled to ship until March I, 2021 (or Due Amount of Reven LO unitu are Chapter 7 Revenue Recognition 7-62 On August 1, 2020, a retailer enters into an arrangement with a customer to sell 10 items for $2,000 ($200 per sem) over a four-month period. During August and September of 2020, the retailer sold 5 of the 10 items to the Under a Contract customer. On October 1,2020, the contract is modified to include 8 additional items, with a transaction price of Modification LO7 s250 per item. Because the additional items have added features, the standalone selling price of the additional tems is $250 per iiem at the date of the contract modification. Exercise 7-74 Required d. Describe how the retailer should account for the contract modification. Determine the amount of revenue per unit to be recognized for the remaining units (the 5 under the original contract and the 8 under the contract modification) to be sold under the revenue contract(s) Smith Manufacturing Inc. sells $250,000 of equipment to a customer on August 15, 2020, and the equipment is prepared to ship on that date. However, Smith Manufacturing Inc. receives a last minute request from the cuslication tomer to hold the shipment for 15-45 days due to delay in construction of a facility where the new equipment and Recogntion will be installed. The equipment is customized for the customer, and it cannot be used for any other purposes Smith bills the customer on August 15, 2020, with payment due in 30 days. The equipment was shipped to the customer on September 8, 2020. Required a. How would this type of revenue contract be classified? Explain. b. At what date is revenue recognized by Smith Manufacturing for the sale of equipment? n January 1, 2020. Miller Inc. sells equipment to Snith Inc. for SSS0. As stipulated in the revenue contract Exercise 775 Miller Inc. will buy back the equipment on December 31, 2020 for SSRSS0. The relevant interest rate is 7%-R on ing Under Different Required a. Prepare the seller's journal entry on January 1, 2020 b. Prepare the seller's journal entry on December 31, 2020. c. Assume instead that Miller has the option to buy back the equipment and the fair value of the equipment is Agreements LO8 expected to decline through 2020. How would the answers to parts a and b change (if at all? d. Assume instead that Smith has the option to require Miller to buy back the equipment after one year for $58,850 (an amount greater than the expected market value of the equipment at that time). How would the answers to parts a and b change (if at all)? On March 15, 2020, Drexel Corp. provides goods to a retailer throa ownership of the goods until the goods are sold to the retailer's customer. Sale to the final customer is docu Recording Revenue mented when the goods are scanned at the cash register of the retailer. Drexel Corp, receives a daily report on the number of units sold by the retailer to the end customer. Any unsold product can be returned to Drexel Corp. at Arrangement LO anytime. Drexel Corp, has the right through the contract to recall any goods shipped and to transfer the goods to another retailer as a way to increase the rate of sales to the final customer. After the sale of the products to the final customer, the retailer cannot return the items to Drexel Corp. During March of 2020, Drexel Corp. transferred 1,200 units to the retailer, and the retailer sold 1,000 units. The product cost Drexel Corp. $80 per unit and the product was sold for $115 per unit to the end customer. The retailer sent a payment to Drexel Corp. for the cash collected on the sale of product less a 10% commission on April 7, 2020 Required signment where Drexel Corp. retains Exercise 7-77 and Recevables Under a Consignme a. At what date should Drexel Corp. recognize revenue? Explain , Record Drexel's entries on March 15, 2020, March 31, 2000, and April 7, 2020. Exercise 7-78 the requirements for each of the following separate On December 31, 2020. Quality Wholesalers Inc. sold merchandise the merchandise is clearly segregated in Wholesalers Inc.'s 30 Deermining Type Revenue Arranger to the and the Timing or distribation center, ready for shipment to not scheduled to ship until March I, 2021 (or Due Amount of Reven LO unitu are