Question

On May 10, 2017, Cosmo Co. enters into a contract to deliver a product to Greig Inc. on June 15, 2017. Greig agrees to pay the full contract price of \(2,000 on July 15, 2017. The cost of the goods is \)1,300. Cosmo delivers the product to Greig on June 15, 2017, and receives payment on July 15, 2017. Prepare the journal entries for Cosmo related to this contract. Either party may terminate the contract without compensation until one of the parties performs

Short answer

The total of debit and credit sides is $5,300.

Step-by-step solution

Explanation of Termination of Contract

Termination of a contract involves termination of it by the parties before fulfillingtheir obligations. It is also clarified that before the parties have fulfilled all their respective contractual responsibilities, their responsibility to fulfill these commitments ceases.

Journal entries

There will be no entry on May 10, 2020, because neither party has complied under the contract, and either party may dissolve the contract without compensation.

Date	Particulars	Debit ($)	Credit ($)
May 10, 2020	No Entry
June 15, 2020	Account Receivable a/c Dr.	2,000
	To Sales Revenue a/c		2,000
June 15, 2020	Cost of Goods Sold a/c Dr.	1,300
	To Inventory a/c		1,300
June 15, 2020	Cash a/c Dr.	2,000
	To Account Receivable a/c		2,000