Question

On november 1, 2018, green valley farm entered into a contract to buy a $150,000 harvester from john deere. the contract required green valley farm to pay $150,000 in advance on november 1, 2018. the harvester (cost of $110,000) was delivered on november 30, 2018. the journal entry to record the delivery of the equipment includes a:

Answer 1

The journal entry to record this transaction should be:

November 1, sale of harvester to Green Valley

Dr Cash 150,000

Cr Unearned sales revenue 150,000

The journal entry to record the delivery of the harvester should be:

Dr Unearned sales revenue 150,000

Cr Sales revenue 150,000

Dr Cost of goods sold - harvester 110,000

Cr Inventory - equipment 110,000

Under the accrual accounting system, money received in advance for the sale of goods or services must be recognized as liabilities, and should be recorded as unearned revenue.

Answer 2

Answer: The correct answer is debit to Inventory or Equipment (Harvester) under Fixed Asset for $110,000.

Explanation: The question is incomplete as it is followed by options.

When Green Valley Farm paid the $150,000 initially in advance, it would have to record the following journal entries, since it seems the price was not certain as at the time the contract was consummated:

November 1, 2018:

Debit Asset under construction or Other asset $150,000

Credit Cash $150,000

November 30, 2018:

Debit Inventory or Equipment $110,000

Debit Cash $40,000

Credit Asset under construction $150,000

However, in the books of John Deere, the following entries would be recorded:

November 1, 2018:

Debit Cash $150,000

Credit Unearned sales revenue $150,000

November 30, 2018:

Debit Unearned sales revenue $150,000

Credit Cash $40,000

Credit Sales revenue $110,000