Question

In: Accounting

Entity A is operated as an internet cafe, which locates in Hung Hom. It opens 24/7...

  1. Entity A is operated as an internet cafe, which locates in Hung Hom. It opens 24/7 (24 hours a day and 7 days a week). Recently, it enters into a short-term contract with Entity B, the largest local internet game server-workstation service provider on 1 January 2019. The contract period is 4 months from 1 February 2019 to 31 May 2019. On 31 January 2019, the internet game server and the workstations are delivered to Entity A.

    This contract includes the provision of one electronic game server with ten workstations and a 24/7 technical supporting service to Entity A over the contract period. According to the contract terms, Entity A is not required to return the game server and the ten workstations back to Entity B at the contract end. Entity A pays a monthly fixed fee of $68,800 to Entity B at every month-end.

    Entity B sells the same internet game server with ten workstations to other customers alone for $360,000. The original cost of them is $235,000. In addition, it also provides the same 24/7 technical supporting service to other customers alone for $10,000 per month.

    REQUIRED:

    Prepare journal entries of the seller on 1 January 2019, 31 January 2019, 1 February 2019, 28 February 2019, 1 March 2019, 31 March 2019, 1 April 2019, 30 April 2019, 1 May 2019 and 31 May 2019 in accordance with the relevant accounting standards.

    ACCOUNT NAMES FOR INPUT:

    | Revenue (Server-workstations) | Cost of sales (Server-workstations) | Inventory (Server-workstations) |

    | Revenue (Technical support) | Cost of sales (Technical support) | Inventory (Technical support) |

    | Contract asset (Server-workstations) | Contract liability (Server-workstations) |

    | Contract asset (Technical support) | Contract liability (Technical support) |

    | Payable | Receivable | Bank | Interest expense | Interest revenue | 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-Jan-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
    1-Feb-19 Blank 13 Blank 14
    Blank 15 Blank 16 An asset. Judge Dr/Cr side
    Blank 17 Blank 18 Judge Dr/Cr side
    28-Feb-19 Blank 19 Blank 20
    Blank 21 Blank 22 Judge Dr/Cr side
    28-Feb-19 Blank 23 Blank 24 A liability. Judge Dr/Cr side
    Blank 25 Blank 26 Judge Dr/Cr side
    1-Mar-19 Blank 27 Blank 28
    Blank 29 Blank 30 An asset. Judge Dr/Cr side
    Blank 31 Blank 32 Judge Dr/Cr side
    31-Mar-19 Blank 33 Blank 34
    Blank 35 Blank 36 Judge Dr/Cr side
    31-Mar-19 Blank 37 Blank 38 A liability. Judge Dr/Cr side
    Blank 39 Blank 40 Judge Dr/Cr side
    1-Apr-19 Blank 41 Blank 42
    Blank 43 Blank 44 An asset. Judge Dr/Cr side
    Blank 45 Blank 46 Judge Dr/Cr side
    30-Apr-19 Blank 47 Blank 48
    Blank 49 Blank 50 Judge Dr/Cr side
    30-Apr-19 Blank 51 Blank 52 A liability. Judge Dr/Cr side
    Blank 53 Blank 54 Judge Dr/Cr side
    1-May-19 Blank 55 Blank 56
    Blank 57 Blank 58 An asset. Judge Dr/Cr side
    Blank 59 Blank 60 Judge Dr/Cr side
    31-May-19 Blank 61 Blank 62
    Blank 63 Blank 64 Judge Dr/Cr side
    31-May-19 Blank 65 Blank 66 A liability. Judge Dr/Cr side
    Blank 67 Blank 68 Judge Dr/Cr side

Solutions

Expert Solution

Date Account Name Debit ($) Credit ($)
31-Jan-19 Receivable A/c Dr $      235,200.00
To Contract liability (Server-workstations) A/c $      235,200.00
31-Jan-19 Cost of sales (Server-workstations) A/c Dr $      235,000.00
Inventory (Server-workstations) A/c $      235,000.00
01-Feb-19 Receivable A/c Dr $        10,000.00
To Contract liability (Technical support) A/c $        10,000.00
01-Feb-19 Receivable A/c Dr $                                      58,800.00
Contract liability (Server-workstations) A/c $ 58,800.00
28-Feb-19 Contract liability (Technical support) A/c Dr $        10,000.00
To Revenue (Technical support) A/c $        10,000.00
28-Feb-19 Contract liability (Server-workstations) A/c Dr $        58,800.00
To Revenue (Server-workstations) A/c $        58,800.00
28-Feb-19 Bank A/c Dr $                                      68,800.00
To Receivable A/c $                                      68,800.00
01-Mar-19 Receivable A/c Dr $        10,000.00
To Contract liability (Technical support) A/c $        10,000.00
01-Mar-19 Receivable A/c Dr $                                      58,800.00
Contract liability (Server-workstations) A/c $                                      58,800.00
31-Mar-19 Contract liability (Technical support) A/c Dr $        10,000.00
To Revenue (Technical support) A/c $        10,000.00
31-Mar-19 Contract liability (Server-workstations) A/c Dr $        58,800.00
To Revenue (Server-workstations) A/c $        58,800.00
31-Mar-19 Bank A/c Dr $                                      68,800.00
To Receivable A/c $                                      68,800.00
01-Apr-19 Receivable A/c Dr $        10,000.00
To Contract liability (Technical support) A/c $        10,000.00
01-Apr-19 Receivable A/c Dr $                                      58,800.00
Contract liability (Server-workstations) A/c $                                      58,800.00
30-Apr-19 Contract liability (Technical support) A/c Dr $        10,000.00
To Revenue (Technical support) A/c $        10,000.00
30-Apr-19 Contract liability (Server-workstations) A/c Dr $        58,800.00
To Revenue (Server-workstations) A/c $        58,800.00
30-Apr-19 Bank A/c Dr $                                      68,800.00
To Receivable A/c $                                      68,800.00
01-May-19 Receivable A/c A/c Dr $        10,000.00
To Contract liability (Technical support) A/c $        10,000.00
01-May-19 Receivable A/c Dr $                                      58,800.00
Contract liability (Server-workstations) A/c $                                      58,800.00
31-May-19 Contract liability (Technical support) A/c Dr $        10,000.00
To Revenue (Technical support) A/c $        10,000.00
31-May-19 Contract liability (Server-workstations) A/c Dr $        58,800.00
To Revenue (Server-workstations) A/c $        58,800.00
31-May-19 Bank A/c Dr $                                      68,800.00
To Receivable A/c $                                      68,800.00

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