Headlands Windows manufactures and sells custom storm windows
for three-season porches. Headlands 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. Headlands enters into the following non-cancellable
contract on July 1, 2020, with a local homeowner. The customer
purchases windows for a price of $4,200 and chooses Headlands to do
the installation. Headlands charges the same price for the windows
regardless of whether it does the installation or not. The price of
the installation service is estimated to have a fair value of
$1,100. The customer pays Headlands $3,300 (which equals the fair
value of the windows, which have a cost of $2,900) upon delivery
and the remaining balance upon installation of the windows. The
windows are delivered on September 1, 2020, Headlands completes
installation on October 15, 2020, and the customer pays the balance
due.
Prepare the journal entries for Headlands on July 1, September 1,
and October 15, 2020
Answer -
Date | Account Titles and explanation | Debit | Credit | hint |
July 1, 2020` | No Entry | $0 | ||
No Entry | $0 | |||
September 1, 2020 | Cash | $3300 | ||
Accounts receivable | $900 | |||
Unearned service revenue | $1050 | (1100/4400)*4200 | ||
Sales Revenue | $3150 | (3300/4400)*4200 | ||
(To record delivery and installation expenses) | ||||
September 1 2020 | Cost of goods sold | $2900 | ||
Inventory | $2900 | |||
(To record cost of goods sold) | ||||
October 15, 2020 | Cash | $900 | ||
Unearned service revenue | $1050 | |||
Service revenue | $1050 | |||
Accounts receivable | $900 | |||
Note: total fair value = 1100+3300 = 4400 |
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