Answered Essay: Pronghorn Windows manufactures and sells custom storm windows for three-season porches. Pronghorn also provides installation servic

Pronghorn Windows manufactures and sells custom storm windows for three-season porches. Pronghorn also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Pronghorn enters into the following contract on July 1, 2017, with a local homeowner. The customer purchases windows for a price of $2,290 and chooses Pronghorn to do the installation. Pronghorn charges the same price for the windows irrespective of whether it does the installation or not. The installation service is estimated to have a standalone selling price of $590. The customer pays Pronghorn $2,070 (which equals the standalone selling price of the windows, which have a cost of $1,110) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2017, Pronghorn completes installation on October 15, 2017, and the customer pays the balance due.

Prepare the journal entries for Pronghorn in 2017.

Expert Answer

 

It is mentioned that the contract is entered for purchase of windows for $2,290. Later it is mentioned that the customer pays $2,070 towards the standalone selling price for the windows.

Hence, the balance of $220 should be considered as sales tax.

1. Entry for recording sale of windows

Date Account & Description Debit Credit
Sept.1,2017 Acounts Receivable $2,290
Sales $2,070
Sales tax payable $220
(Contract for sale of windows)

2. Entry for recording the cost of the windows sold

Date Account & Description Debit Credit
Sept.1,2017 Cost of goods sold $1,110
Inventory $1,110
(Cost of the windows accounted)

3. Entry for recording the receipt of cash

Date Account & Description Debit Credit
Sept.1, 2017 Cash $2,070
Accounts receivable $2,070
(Receipt of cash accounted)

4.Entry for recording the installation charges.

Date Account & Description Debit Credit
Oct.1,2017 Cash $590
Service revenue $590
(Installation charges accounted)

5. Entry to record the balance payment.

Date Account & Description Debit Credit
Oct.15,2017 Cash $220
Accounts Receivable $220
(Balance payment made by custoer)
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