Question

Pina Windows manufactures and sells custom storm windows for three-season porches. Pina also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Pina enters into the following contract on July 1, 2020, with a local homeowner. The customer purchases windows for a price of $2,370 and chooses Pina to do the installation. Pina charges the same price for the windows irrespective of whether it does the installation or not. The installation service is estimated to have a standalone selling price of $610. The customer pays Pina $2,050 (which equals the standalone selling price of the windows, which have a cost of $1,140) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2020, Pina completes installation on October 15, 2020, and the customer pays the balance due.Prepare the journal entries for Pina in 2020.

Answer 1

Answer:

Journal Entries for Pina in 2020:

July 1:

Debit Accounts Receivable with $2,050

Credit Sales Account with $2,050

Being sales on account

Sept 1:

Debit Cash with $2,050

Credit Accounts Receivable with $2,050

Being cash received

Oct 15:

Debit Cash with $320

Credit Installation Service Income with $320

Being cash receipt for installation service

Explanation:

a) The value of actual sales excluding installation is equal to $2,050.  So, the Sales and Accounts Receivable are credited and debited respectively with this amount.

b) Installation service was completed on October 15, 2020.  The element of the contract value $320 is recognized in the accounts on this date and the respective cash and income accounts are debited and credited.