Question

Carla Vista Company manufactures products ranging from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $200,000 to $1,500,000 and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order for the installed equipment to perform to specifications. Carla Vista has the following arrangement with Vaughn Inc.

- Vaughn purchases equipment from Carla Vista for a price of $976,600 and contracts with Carla Vista to install the equipment. Carla Vista charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Carla Vista determines installation service is estimated to have a standalone selling price of $51,400. The cost of the equipment is $630,000.
- Vaughn is obligated to pay Carla Vista the $976,600 upon the delivery of the equipment.

Carla Vista delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. The equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations which should be accounted for separately.


Prepare the journal entries for Carla Vista for this revenue arrangement on June 1, 2025 and September 30, 2025, assuming Carla Vista receives payment when installation is completed. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts. List all debit entries before credit entries. Record journal entries in the order presented in the problem. Round answers to O decimal places, eg. 5,275)

Answer 1

Journal entries for Carla Vista Company's revenue arrangement involve recognizing revenue from equipment sale when the equipment is delivered and recognizing installation service revenue when installation is completed and payment is received.

Step-by-step explanation:

The student is asking for assistance with preparing journal entries for revenue arrangement on specific dates, according to accounting principles. For Carla Vista Company, the revenue should be recognized when each performance obligation is satisfied. Here are the journal entries required:

June 1, 2025:

When the equipment is delivered:

• Debit Accounts Receivable for the amount of the equipment excluding installation: $925,200 (=$976,600 - $51,400)
• Credit Revenue from Equipment Sale: $925,200

September 30, 2025:

When the installation is completed and payment is received:

• Debit Cash: $976,600
• Credit Accounts Receivable: $925,200
• Credit Installation Service Revenue: $51,400

The cost of the equipment is not part of these journal entries since it pertains to an expense transaction, not a revenue transaction.