Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Accounting Basics Expert

Moto Knappy is a producer of automobile motors.  The manufacturing process takes a combine of months.  The company produces numerous standard and custom models.  To simplify this case, assume the motors are sold devoid of a right of return or any warranty of any kind. 

Moto Knappy is a publicly traded company headquartered in Lindsey, OK.

Transaction1

Jensen Jalopies assembles cars using various parts which it purchases from suppliers plus some additional parts it manufactures itself.  On August 10, 2012, Jensen Jalopies signs a contract to purchase 100 model 357 motors from Moto Knappy.  The contract specifies the following:

• The motors will be ready for the delivery on December 20, 2012.  Though, Jensen Jalopies has informed Moto Knappy that since its assembly procedure follows just-in-time practices, Jensen Jalopies might delay delivery until it is ready to use the motors.  But, the customer should take delivery of all 100 motors no later than March 5, 2013.

• The buy price is $900 per motor.  The contract needs a 10% down payment on signing.  The remainder of the price is due on December 20, 2012, provided that the 100 motors are ready to deliver.

• Any motors not delivered on December 20 will be stored in Moto Knappy’s warehouse.  One of its employees, Tom Wayne, is assigned to go to warehouse once every two weeks and spin the crankshafts on all motors in storage to make sure they are properly lubricated and the internal parts don’t seize.  The contract does not reimburse Moto Knappy for any of the cost of storage or Mr. Wayne’s maintenance of the motors.

• If Moto Knappy fails to deliver some of the motors, the buy price for those motors will be refunded.
As of December 15, 2012, Moto Knappy has 100 model 357 motors in inventory.   Jensen Jalopies takes delivery of 40 motors on December 20, 2012, 30 motors on January 20, 2013, and the final 30 motors on February 20, 2013.  As per the contract, Moto Knappy collects the remainder of the purchase price on December 20, 2012.  The model 357 is employed by numerous customers of Moto Knappy; any additional orders for that model are anticipated to be supplied by making new motors, but if a rush order is received, Moto Knappy could use some of its existing inventory to meet the rush order and then build new motors to replenish its inventory.

Transaction2

Moto Knappy enters a contract on September 10, 2012, to sell 50 model 440 motors to the Ayres Autos.  The contract specifies the subsequent:

• The motors will be shipped to Ayres Autos at December 15, 2012.

• The buy price is $1,100 per motor.  The contract needs a 10% down payment on signing.  The remainder of price is payable on delivery.  The deposit is refundable if Moto Knappy fails to deliver the motors.

As of December 13, 2012, Moto Knappy has 60 model 440 motors intoinventory.   Ayres Autos contacts Moto Knappy with the following information:

“We experienced a fire in our warehouse on December 10.  As a result, we can only take delivery of 10 motors at a time till the warehouse is repaired.”

Moto Knappy enters discussions with Ayres Autos, and as a result, the contract is modified (in writing) as follows:

• Ten motors will be shipped to Ayres Autos on December 15, 2012.  Ayres Autos will take delivery of remaining 40 motors when it has room or has repaired its warehouse or March 2, 2013, whichever is earlier.

• In the meantime, the remaining 40 motors are sent to Cuccia’s Closet, a local storage facility.  The contract with Cuccia’s Closet lists Ayres Autos as the lessee.  It permits access by Tom Wayne to spin the crankshafts; Ayres Autos will pay Moto Knappy $50 for each hour that Mr. Wayne spends spinning motors at Cuccia’s Closet.  The motors can only be removed from premises by Ayres Autos employees.

• An assurance contract exists covering the motors at Cuccia’s Closet against risk of loss because of fire, theft, or flood.  Ayres Autos bought the contract and is the sole beneficiary.

• Moto Knappy collects the remainder of purchase price for all 50 motors on December 15.  The initial deposit becomes non-refundable upon shipment of the first 10 motors.

• The revised agreement can’t be unilaterally cancelled by either party.

Required

1. Before diving in the codification, elucidate in basic terms the main concern to be addressed in determining the appropriate revenue recognition pattern for transactions 1 and 2.  Use terms that a sophomore in Principles could understand.  You are not anticipated to cite the ASC in answering this part, but if you find a passage that is clearly on point, you can.

2. For the transfers to Jensen Jalopies, what is the proper revenue recognition?  Incorporate ASC citations in your discussion.  Also, provide the journal entries related to revenue or deferred revenue (if any) at August 10, December 15, December 20, January 20, and February 20.  You don’t need to worry about journal entries related to the cost of manufacturing the motors or inventory and cost of goods sold.

3. For the transfers to Ayres Autos, what is the proper revenue recognition?  Incorporate ASC citations in your discussion.  Also, pass out the journal entries related to revenue or deferred revenue (if any) at September 10 and December 15.  Also, supposing Ayres Autos took delivery of remaining 40 motors on January 15, what is the entry for that day?  You don’t want to worry about journal entries related to the cost of manufacturing the motors or inventory and cost of goods sold.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M91674

Have any Question? 


Related Questions in Accounting Basics

Question 1the production manager of rordan corporation has

Question 1: The production manager of Rordan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:                                             1st Quarter      ...

Colllege loans and repayment projecti think that the

COLLLEGE LOANS AND REPAYMENT PROJECT I think that the College Debt issue will be the defining issue impacting young people who go to college today just like the Great Depression/WII was the defining issue for my parent's ...

The budget director for bird house unlimited inc has

The budget director for Bird House Unlimited, Inc., has gathered the following data for use in developing the budgeted income statement for November 20XX. Estimated sales for November Bird House 28,600 units at $33 per u ...

Individual research papercompany case study assignmentthis

Individual Research Paper Company Case Study Assignment This assignment has a number of learning objectives, sources, and opportunities: 1. You will explore financial performance and investor information available fromva ...

Accountingbulluse the internet to research an annual report

Accounting • Use the Internet to research an annual report of a retail company. • Then, imagine you are an investor or creditor; suggest the ratios that you believe would provide an investor or creditor with the most imp ...

Assignment descriptiona manufacturing company is thinking

Assignment Description A manufacturing company is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including ...

Westerville company reported the following results from

Westerville Company reported the following results from last year % 2013 operations: Sales $ 1,000,000 Variable expenses 300,000 -------------------------------------- Contribution margin 700,000 Fixed expenses 500,000 - ...

Waupaca company establishes a 480 petty cash fund on

Waupaca Company establishes a $480 petty cash fund on September 9. On September 30, the fund shows $211 in cash along with receipts for the following expenditures: transportation-in, $51; postage expenses, $65; and misce ...

Principles of accountingthe accounting cyclequestion

Principles of Accounting The Accounting Cycle Question A • Explain why temporary accounts are closed each period. Question B • Identify the 10 steps in the accounting cycle.

Accountingscenariothe park family consists of the

Accounting Scenario: The Park family consists of the following: • Jackie O. Park; age 40; SSN: XXX-XX-XXXX; business analyst; single; unmarried • Leslie T. Park; age 16; SSN: 000-00-0000; daughter; high-school student; l ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro