BBQ Master Company sells total outdoor barbecue solutions, providing gas and charcoal barbecues, accessories, and installation services for custom patio barbecue stations

BBQ Master Company sells total outdoor barbecue solutions, providing gas and charcoal barbecues, accessories, and installation services for custom patio barbecue stations.

Instructions

Respond to the requirements related to the following independent revenue arrangements for BBQ Master products and services. Assume that BBQ Master follows IFRS.

(a) BBQ Master offers contract BM205, which comprises a free-standing gas barbecue for small patio use plus installation to a customer’s gas line for a total price of $800. On a stand-alone basis, the barbecue sells for $700 (cost $425), and BBQ Master estimates that the fair value of the installation service (based on cost-plus estimation) is $150. BBQ Master signed 10 BM205 contracts on April 20, 2017, and customers paid the contract price in cash. The barbecues were delivered and installed on May 15, 2017. Prepare journal entries for BBQ Master for BM205 in April and May 2017.

(b) The province of Ontario is planning major renovations in its parks during 2017 and enters into a contract with BBQ Master to purchase 400 durable, easy maintenance, standard charcoal barbecues during 2017. The barbecues are priced at $200 each (with a cost of $160 each), and BBQ Master provides a 6% volume discount if Ontario purchases at least 300 grills during 2017. BBQ Master delivers and receives payment for 280 barbecues on April 17, 2017. Based on prior experience with province of Ontario renovation projects, the delivery of this many barbecues makes it certain that Ontario will meet the discount threshold. Prepare the journal entries for BBQ Master for barbecues sold on April 17, 2017.

(c) BBQ Master sells its specialty combination gas/wood-fired barbecues to local restaurants. Each barbecue is sold for $1,000 (cost $550) on credit with terms 3/30, net/90. Prepare the journal entries for the sale of 20 barbecues on September 1, 2017, and upon payment, assuming the customer paid on

(1) September 25, 2017, and

(2) October 15, 2017. Assume the company records sales net and therefore the account receivable is recorded at 97% of the selling price.

(d) On October 1, 2017, BBQ Master sold one if its super deluxe combination gas/charcoal barbecues to a local builder. The builder plans to install it in one of its “Parade of Homes” houses. BBQ Master accepted a three-year, zero-interest-bearing note with a face amount of $5,324. The barbecue has an inventory cost of $2,700. An interest rate of 10% is an appropriate market rate of interest for this customer. Prepare the journal entries on October 1, 2017, and December 31, 2017.

SOLUTION

(a) The total revenue of $8,000 ($800 X 10) should be allocated to the two performance obligations based on their relative fair values. In this case, the fair value of the barbeques is considered $7,000 ($700 X 10) and the fair value of the installation fees is $1,500 ($150 X 10). The total fair value to consider is therefore $8,500 ($7,000 + $1,500). The allocation is as follows.

Equipment ($7,000 / $8,500) X $8,000 = $6,588

Installation ($1,500 / $8,500) X $8,000 = $1,412

BBQ Master makes the following entries:

April 20, 2017

Cash 8,000

Unearned Revenue- Installation 1,412

Unearned Revenue- Equipment 6,588

May 15, 2017

Unearned Revenue- Installation 1,412

Unearned Revenue- Equipment 6,588

Service Revenue - Installation 1,412

Sales Revenue 6,588

Cost of Goods Sold 4,250

Inventory ($425 X 10) 4,250

Both the sale of the equipment and the service revenue are recognized once the installation is completed on May 15, 2017.

(b)

April 17, 2017

Cash 52,640

Sales Revenue ([$200 X 280] X 94%) 52,640

Cost of Goods Sold 44,800