Question

Waterway 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 catalogue and Internet site. However, given some of its specialty products, select farm implement stores carry Waterway’s products. Pricing and cost information on three of Waterway’s most popular products are as follows. Item Stand-Alone Selling Price (Cost) Mini-trencher $ 4,032 ($2,240) Power fence hole auger 1,344 ($896) Grain/Hay dryer 15,680 ($12,320) Respond to the requirements related to the following independent revenue arrangements for Waterway Ranch & Farm. IFRS is a constraint. A)On January 1, 2017, Waterway sells augers to Mills Farm & Fleet for $53,760. Mills signs a six-month note at an annual interest rate of 12%. Waterway allows Mills to return any auger that it cannot use within 60 days and receive a full refund. Based on prior experience, Waterway estimates that 5% of units sold to customers like Mills will be returned (using the most likely outcome approach). Waterway’s costs to recover the products will be immaterial, and the returned augers are expected to be resold at a profit. Prepare the journal entry for Waterway on January 1, 2017 to record sale and to record cost of good sold. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) B)On August 10, 2017, Waterway sells 12 mini-trenchers to a farm co-op in western Canada. Waterway provides a 4% volume discount on the mini-trenchers if the co-op has a 15% increase in purchases from Waterway compared to 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. Prepare the journal entry for Waterway on August 10, 2017 TO record cash sale and to record cost of good sold. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Part (a) - Journal Entry Worksheet

Assume sales are recorded gross with sales return and entry for sales return is to be passed separately as when sales return is made

Total Sales Value = $53760

Sales Price per auger = $1344

Total auger units sold = 40 auger

Accounts Title and Explanation	Debit	Credit
Notes Receivable	$53760
Sales Revenue		$53760
(Being Auger sold and notes receivable signed)
Cost of goods sold (40 auger * $896 per auger)	$35840
Inventory		$35840
(Cost of goods sold entered)

Part (b) - Journal Entry worksheet

Volume discount is not considered since there is no probability that volume discount will be utilised.

Accounts title and Explanation	Debit	Credit
Cash (12 trenchers * $4032 per trencher)	$48384
Sales Revenue		$48384
(Beibg trencher sold)
Cost of Goods sold (12 trencher * $2240 per trencher)	$26880
Inventory		$26880
(cost of sales deducted from inventory)