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1P_b

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Intermediate Accounting (Kieso)
Found in: Page 1042

Short Answer

Tablet Tailors sells tablet PCs combined with Internet service, which permits the tablet to connect to the Internet anywhere and set up a Wi-Fi hot spot. It offers two bundles with the following terms.

1. Tablet Bundle A sells a tablet with 3 years of Internet service. The price for the tablet and a 3-year Internet connection service contract is $500. The standalone selling price of the tablet is $250 (the cost to Tablet Tailors is $175). Tablet Tailors sells the Internet access service independently for an upfront payment of $300. On January 2, 2017, Tablet Tailors signed 100 contracts, receiving a total of $50,000 in cash.

2. Tablet Bundle B includes the tablet and Internet service plus a service plan for the tablet PC (for any repairs or upgrades to the tablet or the Internet connections) during the 3-year contract period. That product bundle sells for $600. Tablet Tailors provides the 3-year tablet service plan as a separate product with a standalone selling price of $150. Tablet Tailors signed 200 contracts for Tablet Bundle B on July 1, 2017, receiving a total of $120,000 in cash.

Instructions

(b) Prepare any journal entries to record the revenue arrangement for Tablet Bundle B on July 1, 2017, and December 31, 2017.

Total revenue is $1,20,000.

See the step by step solution

Step by Step Solution

Meaning of Unearned Service Revenue

The term unearned service revenue defines the cumulative amount of revenue received in advance from a customer, which a company reports on the liability side of the balance sheet.

Journal entries for tablet bundle B

Date

Particular

Debit ($)

Credit ($)

July 1, 2017

Cash a/c

1,20,000

Unearned service revenue a/c (internet)

51,429

Unearned service revenue a/c (maintenance)

25,714

Sales revenue a/c

42,857

Cost of goods sold a/c

35,000

Inventory a/c

35,000

December 31, 2017

Unearned revenue a/c (internet)

8,571.43

Unearned revenue a/c (maintenance)

4,285.71

Service revenue a/c

12,857.14

Working Notes:

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