Question

Exercise 18-11 Wildhorse Windows manufactures and sells custom storm windows for three-season porches. Wildhorse also provides...

Exercise 18-11 Wildhorse Windows manufactures and sells custom storm windows for three-season porches. Wildhorse 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. Wildhorse enters into the following contract on July 1, 2020, with a local homeowner. The customer purchases windows for a price of $2,510 and chooses Wildhorse to do the installation. Wildhorse charges the same price for the windows irrespective of whether it does the installation or not. The customer pays Wildhorse $1,970 (which equals the standalone selling price of the windows, which have a cost of $1,100) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2020, Wildhorse completes installation on October 15, 2020, and the customer pays the balance due. Wildhorse estimates the standalone selling price of the installation based on an estimated cost of $450 plus a margin of 30% on cost. Prepare the journal entries for Wildhorse in 2020.

Homework Answers

Answer #1

Working:

Performance Obligation Standalone selling price Percent of total standalone price Allocated transaction price
Sale of windows 1970 77.10% 1935
Installation service ($450 x 1.30) 585 22.90% 575
Total 2555 100.00% 2510

Journal entries:

Date Account Titles and Explanation Debit Credit
July 1, 2020 No Entry 0
No Entry 0
September 1, 2020 Cash 1970
Accounts receivable ($2510 - $1970) 540
Sales revenue 1935
Unearned service revenue 575
(To record delivery of windows)
September 1, 2020 Cost of goods sold 1100
Inventory 1100
(To record cost of goods sold)
October 15, 2020 Cash 540
Unearned service revenue 575
Accounts receivable 540
Service revenue 575
(To record installation of windows)
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