Question

Bonita Ranch & Farm is a distributor of ranch and farm equipment. Its products include small tools, power equipment for trench-digging and fencing, grain dryers, and barn winches. Most products are sold direct via its company Internet site. However, given some of its specialty products, select farm implement stores carry Bonita’s products. Pricing and cost information on three of Bonita’s most popular products are as follows.

Item		Stand-Alone Selling Price (Cost)
Mini-trencher		$3,900	($2,200)
Power fence hole auger		1,320	($880)
Grain/hay dryer		15,470	($12,100)

Respond to the requirements related to the following independent revenue arrangements for Bonita Ranch & Farm. IFRS is a constraint.

1. On January 1, 2020, Bonita sells augers to Mills Farm & Fleet for $52,800. Mills signs a six-month note at an annual interest rate of 12%. Bonita allows Mills to return any auger that it cannot use within 60 days and receive a full refund. Based on prior experience, Bonita estimates that 5% of units sold to customers like Mills will be returned (using the most likely outcome approach). Bonita’s costs to recover the products will be immaterial, and the returned augers are expected to be resold at a profit. Prepare the journal entries for Bonita on January 1, 2020.

2.On August 10, 2020, Bonita sells 17 mini-trenchers to a farm co-op in western Canada. Bonita provides a 4% volume discount on the mini-trenchers if the co-op has a 15% increase in purchases from Bonita compared with the prior year. Given the slowdown in the farm economy, sales to the co-op have been flat, and it is highly uncertain that the benchmark will be met.

3. Bonita sells three grain/hay dryers to a local farmer at a total contract price of $50,000. In addition to the dryers, Bonita provides installation, which has a stand-alone sales value of $1,020 per unit installed. The contract payment also includes a $1,530 maintenance plan for the dryers for three years after installation. Bonita signs the contract on June 20, 2020, and receives a 20% down payment from the farmer. The dryers are delivered and installed on October 1, 2020, and full payment is made to Bonita.

Prepare the journal entries for Bonita in 2020 related to this arrangement as well as any adjusting journal entries at its December year end

4. On April 25, 2020, Bonita ships 110 augers to Farm Depot, a farm supply dealer in Alberta, on consignment. By June 30, 2020, Farm Depot has sold 70 of the consigned augers at the listed price of $1,320 per unit. Farm Depot notifies Bonita of the sales, retains a 8% commission, and remits the cash due to Bonita.

Prepare the journal entries for Bonita and Farm Depot for the consignment arrangement

Answer 1