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Party Time Company rents and sells vending machines DJ equipment and party supplies such as bounce houses

Party Time Company rents and sells vending machines, DJ equipment, and party supplies such as bounce houses, rock walls and decorations. Party Time offers a 30-day, money-back return on all non-holiday merchandise that it sells. Party Time also offers a two-year warranty on all of its vending machines at no additional cost.

Party Time had the following transactions throughout the year. Assume Party Time uses accrual accounting:

  1. January 8- sold $3,300 of DJ equipment to Grover Company who paid Party Time $1,200 on the date of sale. Grover had 30 days to pay the balance of the bill.
  2. January 26 – Billed Simpson Company $5,800 for two vending machines. Simpson Company asked that Party Time hold the machines for fifteen days until they (Simpson) could finish construction updates on their building.
  3. February 4 – received the balance from Grover Company for the DJ equipment sold on January 8.
  4. February 9 – delivered the vending machines to the customer in transaction #2.
  5. February 26 - received a $300 deposit for a bounce house, rock wall and decorations for a party that was to be held in one week. The total contract price for the party rental is $900.
  6. March 5 – delivered the bounce house and rock wall to the customer in transaction #5. The customer paid the balance of the bill at the time of delivery.
  7. May 8 - Sold $720 of goods that were on consignment from BeatBoxx DJ supplies. Party Time charges a 15% commission on consignment sales.
  8. June 15 - Sold $225 of non-holiday decorations and lights to a customer for cash. Based on past experience, Party Time expects that 1% of the goods will be returned.
  9. July 1 - Sold a vending machine for $6,800 on account. The customer has 30 days to pay the bill. Assume that $2,400 of the $6,800 total cost is the standalone value of the two-year maintenance contract. (Hint: Do we recognize the maintenance contract revenue separately? If so, how much revenue do we recognize and when do we report it?)
  10. October 1 – To stimulate sales, Party Time began selling gift cards that could be redeemed for future products or services. The gift cards were good for one year from the date of sale, after which time, they were no longer redeemable. Party Time had the following gift card sales and redemptions from October 1 through December 31: (For the sake of simplicity, assume all redemptions occurred on the last day of each month).
    1. October 1–      Sold $5,000, redeemed $1,000
    2. November 1– Sold $11,000, redeemed $4,600.
    3. December 1– Sold $23,000, redeemed $16,200.

Required:

For each situation, determine if revenue should be recognized on each date and, if so, how much should be recognized. Please write out each transaction date and the amount that should be recognized on that date. If no revenue is recognized on a transaction date, explain why. Be sure to show all calculations.

Feb 08 2020 View more View Less

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