Question

Sheridan Company sells goods that cost $330,000 to Grouper Company for $425,000 on January 2, 2020. The sales price includes an installation fee, which is valued at $43,500. The fair value of the goods is $391,500. The goods were delivered on March 1, 2020. Installation is considered a separate performance obligation and was completed on June 18, 2020. Under the terms of the contract, Grouper Company pays Sheridan $274,000 upon delivery of the goods and the balance at the completion of the installation.

Using the five-step process for revenue recognition, determine when and how much revenue would be recognized by Sheridan. Assume IFRS is followed. (Round percentage allocations to 2 decimal places, 15.25 and final answers to 0 decimal places, e.g. 5,275.)

1) Performance Obligation   When? How much?

Deliver goods

Installation

Total

2) Prepare the journal entries for Sheridan on January 2, March 1, and June 18, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)

Answer 1

1.

performance obligation	when?	How much?
Delivery of goods	March 1st 2020	$ 391,500
Installation	June 18th 2020	$ 43,500
Total		435,000

2.

Journal Entries ($)

March 1st 2020	Accounts Receivable Dr	435,000
	To Sales		391,500
	To Unearned revenue		43,500
	(To record sale)
	Cost Of goods sold Dr	330,000
	To Inventory		330,000
	(To record cost of goods sold)
	Cash Dr	274,000
	To Accounts Receivables		274000
	(Part payment received)

18th June 2020	Unearned Income Dr	43,500
	To Installation charges collected/other income		43500
	(Installation charges now recognised)
	Cash Dr (425,000-274000)	151,000
	Discount Allowed Dr	10,000
	To Accounts Receivables		61,000
	(Final payment received)