Question: What would the journal entries be for the following?
Fannons primary source of revenue is sales of turbines to wind farms. Typically, the contract has two components. First is the sale of the actual turbines, all on credit, with terms never to exceed two years. You may assume that all receivables are collected in accordance with contract terms.
During 2010, Fannon will sell 2950 in turbines on credit, of which 2000 is due in 2010, 600 is due in 2011 and 350 is due in 2012. Ending balances on the balance sheet for receivables due in 2011 will be 922 and for receivables due in 2012 will be 350. In addition, Fannon also signs contracts to provide wind farms in the future. During 2010, Fannon will sign contracts (but not yet collect cash) to build wind farms in 2011 for 1500 and in 2012 for 800.
2. Second are service contracts that extend over two years to operate the wind farm. You may assume that those contracts are all paid in advance and services are provided in accordance with the contract. In 2010 Fannon will be paid 530, of which 210 is for services to be rendered in 2010, 180 for services in 2011 and 140 for services in 2012. At year-end 2010, Fannon will have total remaining obligations (ending balances on the balance sheet) to provide services of 195 in 2011 and 140 in 2012.
3. Turbines constitute Fannon's inventory. During 2010, Fannon will purchase 2030 of turbine components and spend 450 on labor to construct turbines. You may assume that all purchases of turbine components are on credit (trade payable, 30 day terms) and all labor is paid in cash. The ending balance in the inventory account will be 720 and the ending balance in accounts payable will be 1700.
4. Fannon reports under International Financial Reporting Standards, which require research and development to be expensed, except in the case of late-stage development costs after technological feasibility has been demonstrated. During 2010, Fannon will incur 285 in research and development costs (all paid in cash) of which 50 will satisfy the criteria to be recognized as an Capitalized Development Cost intangible asset.
5. Depreciation and amortization will total 120. Of that, 10 is for the intangible development cost asset and the rest is for property, plant and equipment.
6. Sales staff will be paid a total of 305. At the end of the year, they will still be owed a total of 15 to be paid in 2011 (ending balance in Salaries Payable should be 15).
7. Fannon will acquire property, plant and equipment for 95 in cash. Separately, they will sell property, plant and equipment that originally cost 120 and is 75% of the way through its useful life for cash of 40.
8. Interest expense on long term debt will total 63, all paid in cash. No long term debt principal will be repaid.
9. Income tax expense, all paid in cash, will be 10.
10. Fannon will declare and pay dividends of 50. In addition, they will repurchase shares for 8.