Question

Master Grill Company sells outdoor grilling products, providing gas and charcoal grills, accessories, and installation services for custom patio grilling stations. Required: Respond to the requirements related to the following independent revenue arrangements for Master Grill products and services. (a) Master Grill offers contract MG100 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 $950. On a standalone basis, the grill sells for $800 (cost $470), and Master Grill estimates that the fair value of the installation service (based on cost-plus estimation) is $200. Master Grill signed 15 MG100 contracts on May 30, 2018, and customers paid the contract price in cash. The grills were delivered and installed on June 15, 2018. Prepare journal entries for Master Grill for MG100 in May and June 2018.

Answer 1

Answer:

cash    14,250 debit

      unearned revenue    14,250 credit

--sing and payment of the contract--

unearned revenue   14,250 debit

     sales revenues                 11,640 credit

     service revenue                2,910  credit

--accrued revenue for 15 grill sold and installed--

cost of good sold   7,050 debit

   Inventory                         7,050 credit

--cost of the grill sold in combo --

Explanation:

At May as the owenership/installationwasn't complete. Will be recognizeas unearned revenue.

15 contract x 950 per contract = 14,250 cash proceeds

Now, at recognition a portion of the revenue will be considered services revenue and another sales revenue.

grill sale price    800

installation fee   200

total                  1,000

the grill represent 80% of the revenue (800/1,000)

the installation fee 20% (200/1,000)

Thus, 970 x 80% = 776 sales revenue

and    970 x 20% = 194 service fees revenue

We multiply by 15 to get the revenue of these contract:

776 x 15 = 11,640

194  x 15 =  2,910

Cost of goods sold: 15 x 470 = 7,050