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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 $2,400 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 price of the installation service is estimated to have a fair value of $600. The customer pays Geraths $2,000 (which equals the fair value of the windows, which have a cost of $1,100) 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. (Round amounts to nearest dollar.)BE18-12.Refer to the revenue arrangement in BE18-11. Repeat the requirements, assuming (a) Geraths estimates the standalone value of the installation based on an estimated cost of $400 plus a margin of 20% on cost, and (b) given uncertainty of finding skilled labor, Geraths is unable to develop a reliable estimate for the fair value of the installation. (Round amounts to nearest dollar.)

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Answer from: reyrey216

Solution and Explanation:

a. Prepare the journal entries for Geraths in 2014.

On July 1, 2014, Geraths enters into a contract with a customer for the purchase and installation of window for a price of $2,400. No journal entry.

On september 1, 2015.

Windows = $2,000

Installation = $600

Total = $2,600

Allocation

Particulars Amount

Installation $(\$ 600 / \$ 2,600) \times \$ 2,400$ 554

Windows $(\$ 2,000 / \$ 2,600) \times \$ 2,400$ 1,846

Revenue recognized 2,400

Date Account details Debit Credit

Sep 1,2015 Cash 2,000

Account receivable 400

unearned service revenue 554

Sales revenue 1846

Cost of goods sold 1100

Inventory 110

15 oct,2015 Cash 400

unearned service revenue 554

Service revenue (installation) 554

Account receivable 400

(Revenue recognized after service provided)

On september 1,2015.

Windows = $2,000

Installation $(\$ 400+(20 \% \times 400)$ = $480

Total = $2,480

Allocation.

sales revenues 200,000

Particulars Amount

Installation 465

Windows 1,935

Revenue recognized 2,400

Date Account details Debit Credit

Sep 1,2015 Cash 2,400

Account receivable 400

unearned service revenue 465

Sales revenue 1935

Cost of goods sold 1100

Inventory 1100

(Windows delivered,Instailation recorded )

15 oct,2015 Cash 400

unearned service revenue 465

Service revenue (installation) 465

Account receivable 400

(Revenue recognized after service provided)

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Geraths Windows manufactures and sells custom storm windows for three-season porches. Geraths also p...

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