Question

Headlands Windows manufactures and sells custom storm windows for three-season porches. Headlands also provides installation service...

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

Homework Answers

Answer #1

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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