Question

1. 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

Answer 1

Entity A
Journal Entries
Date	Accounts	Debit	Credit
2019
1-Jan	Bank	$        3,845,000
	Advance from Entity B		$        3,845,000
	(Advance received from Entity B for the supply of Material X)
31st Dec,2019	Adance from Entity B	$        3,845,000
Sales		$        3,845,000
	(Sales recognized for material X transferred to Entity B)
	Cost of Goods sold	$        2,856,000
	Inventory		$        2,856,000
	(Cost of Material X sold)
31st Dec 2019	Sales	$        3,845,000
Income Summary		$        3,845,000
	(Transfer of Revenue to Income Summary)
	Income Summary	$        2,856,000
	Cost of Goods Sold		$        2,856,000
	(Transfer of Expense to Income Summary)
	Income Summary	$            989,000
	Retained Earnings		$            989,000
	(Transfer of Profit to Capital)
28th Feb 2020
Entity B	$            258,000
	Sales		$            258,000
	(Material Y delivered to B)
	Cost of Goods sold	$            193,500
	Inventory		$            193,500
	(Cost of Material Y sold i.e 258000*75%=$193500)
31st Mar 2020
Entity B	$            400,550
	Sales		$            400,550
	(Material Z delivered to B)
	Cost of Goods sold	$            320,440
	Inventory		$            320,440
	(Cost of Material Z sold i.e 400550*80%=$320440)
30th April 2020	Bank	$            658,550
Entity B		$            658,550
	(Crossed cheque received from Entity B for material X & Z)