Question

Sheridan Windows manufactures and sells custom storm windows for three-season porches. Sheridan 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. Sheridan enters into the following contract on July 1, 2020, with a local homeowner. The customer purchases windows for a price of $2,470 and chooses Sheridan to do the installation. Sheridan charges the same price for the windows irrespective of whether it does the installation or not. The customer pays Sheridan $1,940 (which equals the standalone selling price of the windows, which have a cost of $1,050) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2020, Sheridan completes installation on October 15, 2020, and the customer pays the balance due. (a) Partially correct answer iconYour answer is partially correct. Sheridan 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 Sheridan in 2020.

Answer 1

Revenue allocated:

	Fair value	% of total fair value	Total sales value	Revenue allocated
		a	b	a*b
Windows	1940	76.83%	2470	1897.7
Installation [450 + 30%]	585	23.17%	2470	572.3
	2525			2470

1.

		Debit	Credit
Sep 1,2020	Cash	1940
	Accounts receivable [2470 - 1940]	530
	Unearned revenue-Installation		572
	Sales revenue		1897
Sep 1,2020	Cost of goods sold	1050
	Merchandise inventory		1050
Oct 15,2020	Cash	530
	Unearned revenue-Installation	572
	Accounts receivable		530
	Service revenue-Installation		572