Question

Sarasota Company sells total outdoor grilling solutions, providing gas and charcoal grills, accessories, and installation services for custom patio grilling stations. Respond to the requirements related to the following independent revenue arrangements for Sarasota products and services. Sarasota offers contract GM205, which is comprised of a free-standing gas grill for small patio use plus installation to a customer’s gas line for a total price $873. On a standalone basis, the grill sells for $757 (cost $454), and Sarasota estimates that the standalone selling price of the installation service (based on cost-plus estimation) is $164. (The selling of the grill and the installation services should be considered two performance obligations.) Sarasota signed 10 GM205 contracts on April 20, 2017, and customers paid the contract price in cash. The grills were delivered and installed on May 15, 2017. Prepare journal entries for Sarasota for GM205 in April and May 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit Apr. 20, 2017 May 15, 2017 (To record sales) (To record cost of goods sold) SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT The State of Kentucky is planning major renovations in its parks during 2017 and enters into a contract with Sarasota to purchase 430 durable, easy maintenance, standard charcoal grills during 2017. The grills are priced at $210 each (with a cost of $158 each), and Sarasota provides a 5% volume discount if Kentucky purchases at least 330 grills during 2017. On April 17, 2017, Sarasota delivered and received payment for 310 grills. Based on prior experience with the State of Kentucky renovation projects, the delivery of this many grills makes it certain that Kentucky will meet the discount threshold. Prepare the journal entries for Sarasota for grills sold on April 17, 2017. Assume the company records sales transaction net. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (To record sales) (To record cost of goods sold) SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT Sarasota sells its specialty combination gas/wood-fired grills to local restaurants. Each grill is sold for $920 (cost $535) on credit with terms 3/30, net/90. Prepare the journal entries for the sale of 20 grills on September 1, 2017, and upon payment, assuming the customer paid on (1) September 25, 2017, and (2) October 15, 2017. Assume the company records sales net. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) No. Date Account Titles and Explanation Debit Credit (1) (To record sales) (To record cost of goods sold) (2) (To record sales) (To record cost of goods sold) SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT On October 1, 2017, Sarasota sold one of its super deluxe combination gas/charcoal grills to a local builder. The builder plans to install it in one of its “Parade of Homes” houses. Sarasota accepted a 3-year, zero-interest-bearing note with face amount of $5,697. The grill has an inventory cost of $2,539. An interest rate of 10% is an appropriate market rate of interest for this customer. Prepare the journal entries on October 1, 2017, and December 31, 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) Date Account Titles and Explanation Debit Credit (To record sales) (To record cost of goods sold)

Answer 1

b) April 17, 2017 Cash 51870

Accounts Receivable 51870

(260 X 210 = 54600

Less discount 5%= (2730)

c) 1. September 1 2017

Accounts receivable (20 X 900 - (18000 X 2%)) 17640

Sales revenue 17640

Cost of goods sold (559 X 20) 11180

Inventory 11180

September 25 2017

Cash 17640   

Accounts receivable 17640

2. September 1, 2017

Accounts receivable 17640

Sales revenue 17640

Cost of goods sold 11180

Inventory 11180

Cash 18000

Accounts receivable 17640

Discount forfeited 360

(18000 X 2%)

a) The total revenue of $8,640 ($864 X 10) should be allocated to the two performanceobligations based on their relative fair values. In this case, the fair value of the grills isconsidered $7,590 ($759 X 10) and the fair value of the installation fee is $1540 ($154 X 10).The total fair value to consider is therefore $9130 ($7590 + $1540). The allocation is as follows.

Equipment ($7590 / $9130) X $8640 = $7183

Installation ($1540 / $9130) X $8640 = $1457

Sarosata makes the following entries

April 2017

Cash..........................................................................................8640

Unearned Service Revenue (Installation).......................1457

Unearned Service Revenue (Equipment).......................7183

May 2017

Unearned Service Revenue (Installation)..................................1457

Unearned Service Revenue (Equipment)..................................7183

Service Revenue (Installation).......................................1457

Service Revenue (Equipment).......................................7183

Cost of Goods Sold...................................................................3850

Inventory ($385X 10)....................................................3850