Q9IFRS - Intermediate Accounting (Kieso)

Question

Question:Refer to the data in IFRS9-8 for Keyser’s Fleece Inc. Prepare the journal entries for (a) the wool harvested in the first six months of 2017, and (b) the wool harvested that is sold for $10,500 in July 2017.

Step-by-Step Solution

Answer

(a) Wool inventory will be debited, and Unrealized Holding Gain or Loss—Income will be credited by $9,000, respectively. 

(b) Cash account is debited by $10,500, cost of goods sold is debited by $9,000, wool inventory is credited by $9,000 and sales revenue is credited by $10,500.

Step 1: Agricultural produce accounting

In the case of agricultural produce, it is valued at fair value less the cost incurred for selling, which is known as net realizable value. It is treated like its cost and is accounted like other inventories.

Step2: Journal entry for wool harvested

(a) Journal entries are as follows:

Date	Description	Debit	Credit
	Wool Inventory	$9,000
	Unrealized Holding Gain or Loss—Income		$9,000
	(To record wool inventory)

Step 3: Journal entry for wool harvested sold

(2) Journal entries are as follows:

Date	Description	Debit	Credit
	Cash	$10,500
	Cost of Goods Sold	9,000
	Wool Inventory		$9,000
	Sales Revenue		10,500
	(To record sales revenue)