Reference no: EM132536352
Question - Allocate Transaction Price, Discounts, Time Value
Economy Appliance Co. manufactures low-price, no-frills appliances that are in great demand for rental units. Pricing and cost information on Economy's main products are as follows.
Item Standalone Selling Price (Cost)
Refrigerator $500 ($260)
Range 560 ($275)
Stackable washer/dryer unit 700 ($400)
Customers can contract to purchase either individually at the stated prices or a three-item bundle with a price of $1,800. The bundle price includes delivery and installation. Economy also provides installation (not a separate performance obligation).
Instructions - Respond to the requirements related to the following independent revenue arrangements for Economy Appliance Co.
a. On June 1, 2019, Economy sold 100 washer/dryer units without installation to Laplante Rentals for $70,000. Laplante is a newer customer and is unsure how this product will work in its older rental units. Economy offers a 60-day return privilege and estimates, based on prior experience with sales on this product, 4% of the units will be returned. Prepare the journal entries for the sale and related cost of goods sold on June 1, 2019.
b. YellowCard Property Managers operates upscale student apartment buildings. On May 1, 2019, Economy signs a contract with YellowCard for 300 appliance bundles to be delivered and installed in one of its new buildings. YellowCard pays 20% cash at contract signing and will pay the balance upon installation no later than August 1, 2019. Prepare journal entries for Economy on (1) May 1, 2019, and (2) August1, 2019, when all appliances are installed.
c. Refer to the arrangement in part (b). It would help YellowCard secure lease agreements with students if the delivery and installation of the appliance bundles can be completed by July 1, 2019. YellowCard offers a 10% bonus payment if Economy can complete delivery and installation by July 1, 2019. Economy estimates its chances of meeting the bonus deadlineto be 90%, based on a number of prior contracts of similar scale. Repeat the requirement for part (b), given this bonus provision. Assume installation is completed by July 1, 2019.
d. Epic Rentals would like to take advantage of the bundle price for its 400-unit project; on February 1, 2019, Economy signs a contract with Epic for 400 bundles. Under the agreement, Economy will hold the appliance bundles in its warehouses until the new rental units are ready forinstallation. Epic pays 10% cash at contract signing. On April 1, 2019, Economy completes manufacture of the appliances in the Epic bundle order and places them in the warehouse. Economy and Epic have documented the warehouse arrangement and identified the units designated for Epic. The units are ready to ship, and Economy may not sell these units to other customers. Prepare journal entries for Economy on (1) February 1, 2019, and (2) April 1, 2019.
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