Question

On July 31, O’Malley Company contracted to have two products built by Taylor Manufacturing for a total of $185,000. The contract specifies that payment will only occur after both products have been transferred to O’Malley Company. O’Malley determines that the standalone prices are $100,000 for Product 1 and $85,000 for Product 2. On August 1, when Product 1 has been transferred, what is the journal entry to record this event?

Answer 1

Answer:

Debit to contract assets for $100,000

Explanation:

Data given in the question

Total manufacturing cost = $185,000

Standalone price for product 1 = $100,000

Standalone price for product 1 = $85,000

By considering the above information, since the product 1 has been transferred which means we debited the contract assets for $100,000 as it increased the asset account