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Pearl Windows manufactures and sells custom storm windows for three-season porches. Pearl 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. Pearl enters into the following contract on July 1, 2017, with a local homeowner. The customer purchases windows for a price of $2,440 and chooses Pearl to do the installation. Pearl charges the same price for the windows irrespective of whether it does the installation or not. The installation service is estimated to have a standalone selling price of $630. The customer pays Pearl $2,040 (which equals the standalone selling price of the windows, which have a cost of $1,130) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2017, Pearl completes installation on October 15, 2017, and the customer pays the balance due.
Given uncertainty of finding skilled labor, Pearl is unable to develop a reliable estimate for the standalone selling price of the installation.
Prepare the journal entries for Pearl in 2017.

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jepessoa

Answer:

July 1, 2017

No journal entry required because no money or goods have been exchanged.

September 1, 2017

Dr Cash 2,040

Dr Accounts receivable 400

    Cr Sales revenue 1,621.37

    Cr Unearned revenue 418.63

sales revenue = [$2,040 / ($2,040 + $630)] x $2,440 = $1,621.37

unearned revenue = $2,040 - $1,621.37 = $418.63

September 1, 2017

Dr Cost of goods sold 1,130

    Cr Inventory 1,130

October 15, 2017

Dr Cash 400

Dr Unearned revenue 418.63

    Cr Accounts receivable 400

    Cr Sales revenue 418.63

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