Red Maple Co. enters into a contract to sell Product Y and Product Z on January 2, 2021, for an upfront cash payment of $150,000. Product Y will be delivered in two years (January 2, 2023) and Product Z will be delivered in five years (January 2, 2026). Red Maple Co. allocates the $150,000 to Products Y and Z on a relative stand-alone selling price basis as follows.    Stand-Alone Selling Prices Percent Allocated Allocated Amounts Product Y $ 40,000 25% $ 37,500 Product Z 120,000 75% 112,500    $160,000    $150,000   Red Maple Co. uses an interest rate of 6%, which is its incremental borrowing rate. Required Prepare the journal entries needed on January 2, 2021, and December 31, 2021. Prepare the journal entry needed on December 31, 2022. Prepare the journal entry needed on January 2, 2023. Using Excel or a financial calculator, calculate the amount of revenue to be recognized for Product Z and prepare the journal entry needed on January 2, 2026.

Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter17: Advanced Issues In Revenue Recognition
Section: Chapter Questions
Problem 15E: On January 1, 2019, Piper Company entered into an agreement with Save-Mart to sell its most popular...
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Red Maple Co. enters into a contract to sell Product Y and Product Z on January 2, 2021, for an upfront cash payment of $150,000. Product Y will be delivered in two years (January 2, 2023) and Product Z will be delivered in five years (January 2, 2026). Red Maple Co. allocates the $150,000 to Products Y and Z on a relative stand-alone selling price basis as follows. 

 

Stand-Alone Selling Prices

Percent Allocated

Allocated Amounts

Product Y

$ 40,000

25%

$ 37,500

Product Z

120,000

75%

112,500

 

 $160,000

 

 $150,000

 

Red Maple Co. uses an interest rate of 6%, which is its incremental borrowing rate.

Required

  1. Prepare the journal entries needed on January 2, 2021, and December 31, 2021.
  2. Prepare the journal entry needed on December 31, 2022.
  3. Prepare the journal entry needed on January 2, 2023.
  4. Using Excel or a financial calculator, calculate the amount of revenue to be recognized for Product Z and prepare the journal entry needed on January 2, 2026.

 

 

 

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