5. On October 1, Harden Component Corp enters into a contract to sell 1,500 micr

Question

5. On October 1, Harden Component Corp enters into a contract to sell 1,500 micro motherboards to a new customer, Curry Electronics, at a fixed price of $97,500 to be paid on October 15. Delivery is scheduled for November 1. As part of the contract, the seller offers a 20% discount to Curry for any purchases in the next six months. Based on experience, Harden estimates with 70% probability that Curry will redeem the discount and will be applied to $20,000 of purchases. The stand-alone selling price for the motherboards is $68.00 per unit. How many performance obligations are in this contract? Prepare the journal entries that Harden records on October 1, October 15, and November1 under this contract. Assume Curry actually purchases $30,000 of power supplies on December 17 and asks for the discount. Record the journal entry assuming the cash is collected and power supplies are delivered on December 17th. a. b. c.

Explanation / Answer

Answer

a. There are two performance obligations in this contract -

1. For Harden Component Corp - The company has to deliver the 1500 micro motherboards on 1 , november to Curry Electronics

2. For Curry Electronics - The company has to pay $97,500 on 15th, October to Harden Component Corp

b. Journal Entries in the books of Harden

On October 1 - No entry will be recorded as on this date the parties only entered into a contract which is to be executed in future.

On October 15 - Bank A/c Dr. 97500

To Curry Electronics 97500

(Being Advance Received from Curry Electronics)

On November 1 - Curry Electronics A/c Dr 97500

Discount A/c Dr 4500

To Sales A/c 102000

( Being Sale recorded - 1500 micro motherboards @ 68.00 per unit and difference is being recorded as discount (1500*68-97500 = 4500) in the books)

c. On December 17th when curry actually purchases $30,000 of power supplies

Journal Entry

1. Curry Electronics A/c Dr 24000 (30000-30000*.20)

Discount A/c Dr 6000 (30000*.20)

To Sales 30000

(Being Sales Recorded)

2. Cash A/c Dr 24000

To Curry Electronics 24000

(Being Cash Received)

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