Prepare the journal entry for ABC on August

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Reference no: EM132747062

Question - ABC Ranch & Farm is a distributor of ranch and farm equipment. Its products range from small tools, power equipment for trench-digging and fencing, grain dryers, and barn winches. Most products are sold direct via its company catalogue and internet site. However, given some of its speciality products, select farm implement stores carry ABC's products. Pricing and cost information on three of ABC's most popular products are as follows

Item Standalone selling Price (Cost)

Mini - trencher $3,600 ($2,000)

Power fence hole auger 1,200 ($800)

Grain/hay dryer 14,000 ($11,000)

Respond to the requirements related to the following independent revenue arrangements for ABC Ranch and Farm.

a. On January 1,2019 ABC sells 40 augers to Mills Farm & Fleet for $48,000. Mills signs a 6-month note at an annual interest rate of 12%. ABC allows Mills to return any auger that it cannot use within 60 days and receive a full refund. Based on prior experience, ABC estimates that 5% of units sold to customers like Mills will be returned (using the most likely outcome approach). ABC's costs to recover the products will be immaterial and the returned augers are expected to be resold at a profit.

Required: Prepare the journal entry for ABC on January 1, 2019.

b. On August 10,2019 ABC sells 16 mini trenchers to a farm co-op in western Minnesota. ABC provides a 4% volume discount on the mini trenchers if the co-op has a 15% increase in purchases from ABC compared to the prior year. Given the slowdown in the farm economy, sales to the co-op have been flat, and it is highly uncertain that the benchmark will be met.

Required: Prepare the journal entry for ABC on August 10, 2019.

c. ABC sells three grain/hay dryers to a local farmer at a total contract price of $45,200. In addition to the dryers ABC provides installation which has a standalone selling price of $1,000 per unit installed. The contract payment also includes a $1,200 maintenance plan for the dryers for 3 years after installation. ABC signs the contract on June 20, 2019 and receives a 20% down payment from the farmer. The dryers are delivered and installed on October 1 2019 and full payment is made to ABC.

Required: Prepare the journal entries for ABC in 2019 related to this arrangement.

Please solve the question with all the sub-division in a detailed manner.

Reference no: EM132747062

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