Question

Respond to the requirements related to following independent revenue arrangements:

1) On June 1, Freedom shipped 100 TVs to Universal TV (Universal) on consignment. Freedom buys these TVs from their supplier for $600 each. Universal then retails them for $1,000 each, retain $150 and remit $850 to Freedom. On June 15, Universal sold 20 TVs and on June 20 paid the appropriate amount to Freedom. Prepare journal entries for Freedom and Universal for consignment arrangement on June 1, June 15, and June 20.

2) On June 10, Freedom sold 200 sound systems to Loud & Noisy (LN) for $1,500 each on credit. Freedom buys these sound system from their suppliers for $1,000 each. LN has right to return the sound systems with in 90 days and receive full refund. Freedom estimates that 4% of units sold to LN will be returned. Freedom's cost to recover these sound systems will be immaterial and the returned sound systems are expected to resold at a profit. On August 7, 5 sound systems are returned by LN. Prepare the journal entries for Freedom on June 10 and August 7.

3) On June 25, Freedom sold 50 computers on cash to Enterprise Corp (Enterprise) for $900 each. These computers has assurance warranty of 1 year. Estimated cost of assurance warranty is $20 for each. Prepare journal entry for Freedom on June 25.

4) Canucks Inc., a software company sells new accounting software and user support bundled together. The fair value of the software is $1,500 and the fair value of the user support is $500. The user support is valid for a period of 12 months from the date of software purchase. To be able to compete with a competitor's offering, Loon decided to sell the bundle at a discount for $1,800. On June 15, Canucks sold one bundle of software and user support for cash. Prepare the journal entry for Canucks to record the sale on June 15 and adjusting entry if any at year end December 31.

Answer 1

Answer 1)

In the Books of Freedom

Journal Register

Date	Particulars	Dr. / Cr.	Amount	Amount
June 1	Consignment to Universal A/c	Dr.	60000
	To Goods sent on Consignment A/c			60000
	( Being 100 TV of $600 each sent to Universal TV on Consignment Arrangement.)
June 15	Consignee A/c	Dr.	20000
	To Consignment to Universal A/c			20000
	( Being 20 TV Sold by Universal at $1000 each)
June 15	Consignment to Universal A/c	Dr.	3000
	To Consignee A/c			3000
	(Being Commission to Universal TV @ $ 150 each for every TV Sold recorded in the books)
June 20	Bank A/c	Dr.	17000
	Consignment to Universal A/c	Dr.	8000
	To Profit & Loss A/c			8000
	To Consignee A/c			17000
	(Being Amount received from Universal TV and Profit recorded in the books)

In the Books of Universal TV

Journal Register

Date	Particulars	Dr. / Cr.	Amount	Amount
June 1	NO ENTRY
June 15	Cash / Bank / Debtors A/c	Dr.	20000
	To Consignor A/c			20000
	( Being 20 TV received from Freedom sold at $1000 each)
June 15	Consignor A/c	Dr.	3000
	To Bank A/c			3000
	(Being Commission earned @ $ 150 each for every TV Sold recorded in the books)
June 20	Consignor A/c	Dr.	17000
	To Bank A/c			17000
	(Being Balance Amount paid to Freedom)

Answer 2)

In the Books of Freedom

Journal Register

Date	Particulars	Dr. / Cr.	Amount	Amount
June 10	Loud & Noisy A/c	Dr.	300000
	To Sales A/c			300000
	(Being 200 Sound System sold to Loud & Noisy @ 1500 each on credit)
August 7	Sales Return A/c	Dr.	7500
	To Loud & Noisy A/c			7500
	(Being 5 Sound System returned by Loud & Noisy recorded in the books)

Answer 3)

In the Books of Freedom

Journal Register

Date	Particulars	Dr. / Cr.	Amount	Amount
June 25	Cash A/c	Dr.	45000
	Warranty Expense A/c	Dr.	1000
	To Sales A/c			45000
	To Provision for Warranty Expense A/c			1000
	(Being 50 computers sold to Enterprise Corp in cash and provision for 1 year warranty for each computer made)

Answer 4)

In the Books of Canucks Inc.

Journal Register

Date	Particulars	Dr. / Cr.	Amount	Amount
June 25	Cash A/c	Dr.	1800
	Discount Allowed A/c	Dr.	200
	Warranty for User Support A/c	Dr.	500
	To Sales A/c			2000
	To Provision for Warranty for User Support A/c			500
	(Being 1 bundle of Software and User Support sold in cash at a discount of $200 and provision for 1 year warranty for User Support made)