Question

1. Boris Company enters into a contract with Bella Company to manufacture, deliver, and install a specially made piece of machinery. The total contract price is $10,000,000. The contract provides that $5,000,000 must be paid to Boris when the machine is delivered and $5,000,000 must be paid when installation is complete. The junior accountant properly concluded that delivery of the manufactured machine and installation of the machine represent two separate performance obligations. The accountant properly allocated $1,000,000 of the contract price to the installation obligation and $9,000,000 to the delivery obligation.

     Boris delivers the machine to Bella’s factory on December 29, 2019 and Boris employees complete the installation of the machine on January 10, 2020. (SHOW ALL WORK)

Required:

Please prepare the appropriate accounting entries for Boris on December 29, 2019 and on January 10, 2020 assuming Bella makes the payments required under the contract.

2. James Company sells college textbooks to State University. Under the terms of the contract, State University may return whatever textbooks it does not sell for a full refund no later than 120 days from the date of delivery. Based on historic sales to State University and other college book stores, 30% of the books delivered are returned for a full refund.

     On August 1, 2019, James delivers books to State University with a sales value of $400,000. The books have a cost to James of $10,000. State University immediately pays the amount owed upon delivery.

  

Required:

Please prepare the entry to reflect the sale of the books for James on August 1, 2019.

Answer 1

Sr.No	Date	Particulars	Dr	Cr
1		Bella company	10,000,000
		Sales		10,000,000
		(Being revenue recognised by Boris company)
2	29/12/2019	Bank	5,000,000
		Bella company		5,000,000
		(Being realisation on delivery as per terms of contract)
3	10/01/2020	Bank	5,000,000
		Bella company		5,000,000
		(Being realisation on delivery as per terms of contract)

Sr.No	Date	Particulars	Dr	Cr
1	01/08/2019	State University	400,000
		Sales		400,000
		(Being books sold to state univeristy accounted)
2	01/08/2019	Bank	400,000
		State university		400,000
		(Being amount paid by State unoversity upon delivery)
3	01/08/2019	Cost of goods sold	10,000
		Bank		10,000
		(Being cost incurred on books to James)
4	01/08/2019	Bad Debts	120,000
		Provision for doubtful debts		120,000
		(Being 30% provision for bad debts created based on historic data)