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Determine the total expected transaction price

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Question - Part I - On January 1st of Year 1, Company A sold precision testing meters to Company B and immediately collected $20,000 in advance. Delivery of the testing meters is scheduled for December 31st of Year 3. Company A's cost of sales is $6,000. Under the provisions of ASC Topic 606, this agreement contains a significant financing component. The current market rate for similar agreements is 6%.

Required -

1. Determine the total expected transaction price for this agreement.

2. Prepare the journal entry to record the collection on January 1st of Year 1.

3. Prepare the journal entries required to record the financing component on December 31st of Years 1, 2 and 3. The effective interest rate method of amortization is required.

4. Prepare the journal entries to record the delivery of the testing meters on December 31st, Year 3.

Part II - On January 1st of Year 1, Company A delivered $350,000 of precision testing meters to Company B. The cost of sales for Company A is $100,000. The contract requires full payment on December 31st of Year 2. Under the provisions of ASC Topic 606, this agreement contains a significant financing component. The current market rate for similar agreements is 4%.

Required -

1. Determine the total expected transaction price for this agreement.

2. Prepare the journal entry to record the collection on January 1st of Year 1.

3. Prepare the journal entries required to record the financing component on December 31st of Years 1, 2 and 3. The effective interest rate method of amortization is required.

4. Prepare the journal entries to record the delivery of the testing meters on December 31st, Year 3.

Reference no: EM133168196

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