Sanchez Co. enters into a contact to sell Product A and Product B on January 2, 2017, for an upfront cash payment of $150,000. Product A will be delivered in two years (January 2, 2019) and Product B will be delivered in five years (January 2, 2022). Sanchez Co. allocates the $150,000 to Products A and B on a relative stand-alone selling price basis as follows.

Sanchez Co. uses an interest rate of 6%, which is its incremental borrowing rate.
Instructions
(a) Prepare the journal entries necessary on January 2, 2017, and December 31, 2017.
(b) Prepare the journal entries necessary on December 31, 2018.
(c) Prepare the journal entries necessary on January 2, 2019.

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Stand-Alone Selling Prices $40,000 120,000 $160,000 Percent Allocated 25% 75% Allocated Amounts $37,500 112,500 $150,000 Product A Product B