In: Accounting
P18-3 (Allocate Transaction Price, Discounts, Time Value) Grill Master 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 Grill Master
products and services.
(a) Grill Master 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 $800. On a standalone basis,
the grill sells for $700 (cost $425), and Grill Master estimates
that the fair value of the installation service (based on cost-plus
estimation) is $150. Grill Master signed 10 GM205 contracts on
April 20, 2014, and customers paid the contract price in cash. The
grills were delivered and installed on May 15, 2014. Prepare
journal entries for Grill Master for GM205 in April and May
2014.
(b) The State of Kentucky is planning major renovations in its
parks during 2014 and enters into a con- tract with Grill Master to
purchase 400 durable, easy maintenance, standard charcoal grills
during 2014. The grills are priced at $200 each (with a cost of
$160 each), and Grill Master provides a 6% volume discount if
Kentucky purchases at least 300 grills during 2014. On April 17,
2014, Grill Master delivered and received payment for 280 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 Grill Master for grills sold on April 17, 2014.
(c) Grill Master sells its specialty combination
gas/wood-fired grills to local restaurants. Each grill is sold for
$1,000 (cost $550) on credit with terms 3/30, net/90. Prepare the
journal entries for the sale of 20 grills on September 1, 2014, and
upon payment, assuming the customer paid on (1) September 25, 2014,
and (2) October 15, 2014. Assume the company records sales
net.
(d) On October 1, 2014, Grill Master 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. Grill
Master accepted a 3-year, zero-interest-bearing note with face
amount of $5,324. The grill has an inventory cost of $2,700. An
interest rate of 10% is an appropriate market rate of interest for
this customer. Prepare the journal entries on October 1, 2014, and
December 31, 2014.