Brooklyn Inc. buys and sells swim spas that are used in homes across Ontario. The company follow
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Question:
Brooklyn Inc. buys and sells swim spas that are used in homes across Ontario. The company follow ASPE. Unit selling prices range from $40,000 to $80,000.
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- Brooklyn Inc. delivers the swim spa on May 1st, 2021, and completes the installation of the swim spa on May 20th, 2021.
On June 1st the Lee family informs Brooklyn Inc. that they will be not be able to pay their account that is due. The two parties enter into an agreement that the account will be converted into a non-interest bearing promissory note to be repaid in one year from now. Brooklyn Inc. borrows funds at a rate of 4%. Lee family has various loans at 6% interest. The company’s year end is December 31st.
- List the performance obligations? (2 marks)
- Explain when the revenue should be recognized for each performance obligation under ASPE. Support your answer by explaining why it should be recognized at the time you selected. Hint use RCMP for criteria (6 marks)
- Prepare the journal entries for 2021 and 2022. If there is no entry be sure to state no entry. Hint remember to allocate the revenue among the different performance obligations and then use this information when you prepare the journal entries. In your answer do not use the account “discount on notes”. (17 marks)
- If the company followed IFRS when should the revenue be recognized for the sale of the swim spa and why? Be sure to list the criteria and apply it to the question. (2 marks)
Expert Answer:
Brooklyn to sell swim spa to Lee family Brooklyn to install the swim spa Revenue for the sale of swim spa should be recognized on May 1 2021 The revenue is recognized on May 1 2021 since control to th... View the full answer
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