Frank Services is selling a parcel of land to Estelle Produc

Frank Services is selling a parcel of land to Estelle Products for use as a potential building site. The sales agreement, signed on June 1, required Estelle Products to provide a deposit of $5,000 with a balance of $95,000 due within one year. Estelle Products paid the $5,000 deposit on June 1. Estelle Products is depending on a good year to provide the cash needed to consummate the purchase. If Estelle fails to complete the purchase within the specified one-year period, the deposit is not refundable and Frank can proceed to market the parcel to other interested parties. What journal entry or entries should Frank make to record this transaction?  

essay question

Solution

In this sales transaction, journal entry will be recorded for the deposit of $5000. for the remainig $95000, no journal entry is required at the time of signing the agreement, as it causes a commitment, but not necessarily an asset.

Journal entry for deposit

June 1 Cash $5000

Custumer Deposit $5000