Answer: The correct answer is debit to Inventory or Equipment (Harvester) under Fixed Asset for $110,000.
Explanation: The question is incomplete as it is followed by options.
When Green Valley Farm paid the $150,000 initially in advance, it would have to record the following journal entries, since it seems the price was not certain as at the time the contract was consummated:
November 1, 2018:
Debit Asset under construction or Other asset $150,000
Credit Cash $150,000
November 30, 2018:
Debit Inventory or Equipment $110,000
Debit Cash $40,000
Credit Asset under construction $150,000
However, in the books of John Deere, the following entries would be recorded:
November 1, 2018:
Debit Cash $150,000
Credit Unearned sales revenue $150,000
November 30, 2018:
Debit Unearned sales revenue $150,000
Credit Cash $40,000
Credit Sales revenue $110,000
Answer:
The journal entry to record this transaction should be:
November 1, sale of harvester to Green Valley
Dr Cash 150,000
Cr Unearned sales revenue 150,000
The journal entry to record the delivery of the harvester should be:
Dr Unearned sales revenue 150,000
Cr Sales revenue 150,000
Dr Cost of goods sold - harvester 110,000
Cr Inventory - equipment 110,000
Under the accrual accounting system, money received in advance for the sale of goods or services must be recognized as liabilities, and should be recorded as unearned revenue.
