Question

Novak Windows manufactures and sells custom storm windows for three-season porches. Novak 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. Novak enters into the following contract on July 1, 2020, with a local homeowner. The customer purchases windows for a price of $2,280 and chooses Novak to do the installation. Novak charges the same price for the windows irrespective of whether it does the installation or not. The customer pays Novak $1,980 (which equals the standalone selling price of the windows, which have a cost of $1,140) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2020, Novak completes installation on October 15, 2020, and the customer pays the balance due.

Required:
Prepare the journal entries for Geraths in 2020.

Answer 1

Solution :

1st June : No entry -- neither party has performed under any the contract.

On 1st Sept. 2020

Windows = $ 1,980

Installation = $ 600

Total = $ 2,580

Allocation :

Windows $\left(\frac{1980}{2580} \times 2280\right)$ = $ 1,749

Installation $\left(\frac{600}{2580} \times 2280\right)$ = $ 530

Revenue recognized = $ 1,749 + $ 530

                                   = $ 2,279

To record sales

Cash = $ 1,980

Account receivable = $ 299