Geraths Windows manufactures and sells custom storm windows for three-season por

Question

Geraths Windows manufactures and sells custom storm windows for three-season porches. Geraths 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. Geraths enters into the following contract on July 1, 2014, with a local homeowner. The customer purchases windows for a price of $3,400 and chooses Geraths to do the installation. Geraths charges the same price for the windows irrespective of whether it does the installation or not. The customer pays Geraths $1,700 (which equals the fair value of the windows, which have a cost of $1,300) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2014, Geraths completes installation on October 15, 2014, and the customer pays the balance due.Prepare the journal entries for Geraths in 2014, assuming Geraths estimates the standalone value of the installation based on an estimated cost of $420 plus a margin of 20% on cost. Prepare the journal entries for Geraths in 2014, assuming, given uncertainty of finding skilled labor, Geraths is unable to develop a reliable estimate for the fair value of the installation.

Explanation / Answer

Ans)

Date Particulars Debit ( in $) Credit( in $)

1 Sep 2014 Cash 1700

Accounts receivable 1700

Cost of Goods sold 1300

Sales 3400

Closing Stock ( inventory) 1300

( Being Gerath sold Window to the customer

and half of the amount is received and balance

is receivable on installation )

15 Oct 2014 Cash 1700

Accounts Receivable 1700

( Being balance cash received on installation

of the window )

( Note : It is given that Gerath will charge contract price only even if does installation or not )   

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