Question

1.  On October 1, Topper Company signs a contract to sell 1,000tie-dyed shirts for $10,000 ($10.00 each).

On October 8, 900shirts are delivered and Topper receives $9,000 cash (900 * $10)

1. Prepare the journal entry Topper Company would record to recognize revenue on October 8:

	Debit	Credit
Cash	$9,000
Unearned Revenue		$9,000

On October 15, Topper modifies the agreement to sell an additional 500 tie-dyed shitsfor $4,000 ($8.00 each * 500 shirts) which is significantly lower than Topper’s stand-alone selling price at that time.

So they still need to deliver 100from the agreement made on October 1 plus another 500for a total of 600tie-dyed flags.  

Answer 1

1)

The sale of shirts can only be recorded as revenue when all the risk and rewards of the goods i.e the title of the goods is transferred by the seller to the buyer. Moreover there should be a reasonable certainty that the buyer of goods will pay for the purchase of goods to the seller. Then only the seller can record the sale as revenue in his books.

In the present scenerio Tooper Company signs a contract to deliver 1000 shirts @ $10 each on 1st October. As per the above conditions Topper Company cannot record sale in its books of accounts on 1st of October. Topper Company will record sell on 8th October when the goods is actually delivered and that also for only 900 shirts @ $10 each. Signing of contract is only an event not a transaction. So, no entry cannot be passed when the contract is signed. Moreover, Topper Company has also received the payment from the buyer after the goods actually deliverd to the buyer. So, on the 8th of October the following entry will be recorded in the books of Topper Company as Revenue -

Date	Description	Debit	Credit
October, 8	Cash Account	9000
	Sales Revenue Account		9000

The rest of 100 shirts @ $10 each and the 500 shirts @ $8 each will be recognised as revenue as and when the shirts are actually delivered to the buyer and the Topper Company entitled to receive payment on that delivery.