Markley Windows manufactures and sells custom storm windows for enclosed porches
ID: 2533305 • Letter: M
Question
Markley Windows manufactures and sells custom storm windows for enclosed porches. Markley also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be provided by other vendors. Markley enters into the following contract on April 1, 2018, with a local homeowner. The customer purchases windows for a price of $7,000 and chooses Markley to do the installation. Markley 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 $1,800. The customer pays Markley $6,000 (which equals the fair value of the windows, which have a cost of $3,500) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on June 1, 2018, Markley completes installation on July 15, 2018, and the customer pays the balance due.
Instructions
Prepare the journal entries for Markley in 2018. (Round amounts to nearest dollar.)
Explanation / Answer
Fir Value Total
Markley = $6,000
Installation = $1800
Total = $7,800
Allocation
Markley ($6000/7800) x $7000 = $5,385
Installation ($1800/7800) x $7000 = $1615
Total Revenue recognized = $7000
Journal entries for Markley in 2018
April 1, 2018
No entry
June 1, 2018
Dr Cash $6000
Dr Accounts Receivable $1000
Cr Unearned Service Revenue $1615
Cr Sales revenue $5385
June 1, 2018
Dr Cost of goods Sold $3500
Cr Inventory $3500
July 15, 2018
Dr Cash $1000
Dr Unearned Service Revenue $1615
Cr Service Revenue $1615
Cr Accounts Receivable $1000