Acct $372$

Case Study

$1445$

Case Study $1$

Amal Company sells machines. In addition providing accessories, installation and maintenance services. Amal Company performed the following revenue transactions during $2022$:

a$-$ Omar Co$.$ enters into a contract with Amal Co$.$ to purchase $500$ machines during $2022.$ The machines are priced at $$3000$ each $($with a cost of $$2500$ each$),$ and Amal provides a $6\%$ volume discount if Omar Co$.$ purchases at least $300$ machines. Based on prior experience with the transactions with Omar Co$.,$ the Co$.$ will meet the discount threshold. On March $17,2022,$ Amal Co$.$ sold and delivered $200$ machines to Omar Co$.$ and recorded sales net. On May $1,2022$ Amal Co$.$ received the payment from Omar Co$.($assume Omar Co$.$ fails to meet the discount threshold$).$

b$-$ Amal Company offers contract AZ$301,$ which is comprised of a free$-$standing machine plus installation it to a customer for a total price $$6000.$ On a standalone basis, the machine sells for $$5000($cost $$4000),$ and Amal Co$.$ estimates that the standalone selling price of the installation service is $$3000.$ Note that installation service can be performed by other companies. On June $10,2022,$ Amal Co$.$ signed AZ$301$ contract and delivered a machine to Alfatah Co$.$ The customer paid the contract price in cash in the same date. On July $5,2022,$ the installation service was performed.

c$-$ On November $1,2022,$ Amal sold and delivered $4$ machines to a builder for $20,000.$ The builder plans to install it in one of its "Parade of Homes" houses. Amal accepted a $3-$year, zero$-$interest bearing note with face amount of $$26,620.$ The machines have an inventory cost of $$13,500.$ An interest rate of $12\%$ is an appropriate market rate of interest for this customer.

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Acct $372$

Case Study

$1445$

Instructions:

$1-$ Apply the five steps of revenue recognition process for the previous transactions, write your answer in a table as follows:

$\backslash$table$[[\backslash$table$[[$Transaction$],[$number$]],\backslash$table$[[$Step$1$:$],[$Identify the$],[$contract with$],[$customers$.]],\backslash$table$[[$Step$2$:$],[$Identify the$],[$separate$],[$performance$],[$obligations in$],[$the contract$]],\backslash$table$[[$Step$3$:$],[$Determine$],[$the$],[$transaction$],[$price$]],\backslash$table$[[$Step$4$:$],[$Allocate the$],[$transaction price to the$],[$separate$],[$performance$],[$obligations$]],\backslash$table$[[$Rtep$5$:$],[$Recognize$],[$eachue when$],[$obligation$],[$is satisfied$]]],[($a$),,,,,],[($b$),,,,,],[($c$),,,,,]]$

$2-$ Prepare the needed entries to record the previous transactions in Amal books during $2022.$

$3-$ Prepare income statement and statement of financial position $($for only the sections that are affected by these transactions$)$ to reflect the effects of