In September 2014, Gaertner Corp. commits to selling 152 of its iPhone-compatibl

Question

In September 2014, Gaertner Corp. commits to selling 152 of its iPhone-compatible docking stations to Better Buy Co. for $15,200 ($100 per product). The stations are delivered to Better Buy over the next 6 months. After 108 stations are delivered, the contract is modified and Gaertner promises to deliver an additional 54 products for an additional $5,130 ($95 per station). All sales are cash on delivery.

A. Prepare the journal entry for Gaertner for the sale of the first 108 stations. The cost of each station is $55.

B. Prepare the journal entry for the sale of 10 more stations after the contract modification, assuming that the price for the additional stations reflects the standalone selling price at the time of the contract modification. In addition, the additional stations are distinct from the original products as Gaertner regularly sells the products separately.

C. Prepare the journal entry for the sale of 10 more stations (as in (b)), assuming that the pricing for the additional products does not reflect the standalone selling price of the additional products and the prospective method is used.

Explanation / Answer

Answer

Answer A.

Prepare the journal entry for Gaertner for the sale of the first 108 stations. The cost of each station is $55.

Cash A/c Dr. $ 10800 (108 * $100)

           To Sales revenue A/c Cr. $ 10800

Cost of goods sold A/c Dr. $ 5940   (108*55)

                       To inventory A/c Cr. $ 5940  

Answer B.

Prepare the journal entry for the sale of 10 more stations after the contract modification, assuming that the price for the additional stations reflects the standalone selling price at the time of the contract modification.

In addition, the additional stations are distinct from the original products as Gaertner regularly sells the products separately.

Cash A/c Dr. $ 950 (10 * $95)

           To Sales revenue A/c Cr. $ 950

Answer C.

Prepare the journal entry for the sale of 10 more stations (as in (b)), assuming that the pricing for the additional products does not reflect the standalone selling price of the additional products and the prospective method is used.

Cash A/c Dr. $ 983.33 [10 * {($10800 + $5130) / (108+54)} ]

           To Sales revenue A/c Cr. $ 983.33

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