Question

On January 1, 2017, Waterway Co. enters into a contract to sell a customer a wiring base and shelving unit that sits on the base in exchange for $3,300. The contract requires delivery of the base first but states that payment for the base will not be made until the shelving unit is delivered. Waterway identifies two performance obligations and allocates $1,320 of the transaction price to the wiring base and the remainder to the shelving unit. The cost of the wiring base is $670; the shelves have a cost of $300.
Required:
a. Prepare the journal entry on January 1, 2017, for Waterway
b. Prepare the journal entry on February 5, 2017, for Waterway when the wiring base is delivered to the customer.
c. Prepare the journal entry on February 25, 2017, for Waterway when the shelving unit is delivered to the customer and Waterway receives full payment.

Answer 1

Answer and Explanation:

The journal entries are as follows;

a. On Jan 1

No journal entry is required

b. On Feb 5

Contra asset Dr $1,320

        To Sales revenue $1,320

(being sales revenue is recorded)

Cost of goods sold Dr $670

            To Inventory $670

(being cost of goods sold is recorded)

c. On Feb 25

Cash $3,300

Contra asset Dr $1,320

        To Sales revenue $1,980

(being sales revenue is recorded)

Cost of goods sold Dr $300

            To Inventory $300

(being cost of goods sold is recorded)