Sanchez Co. enters into a contract to sell Product A and Product B on January 2, 2020, for an upfront cash payment of $150,000. Product A will be delivered in two years (January 2, 2022) and Product B will be delivered in five years (January 2, 2025). 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 needed on January 2, 2020, and December 31, 2020.

b. Prepare the journal entry needed on December 31, 2021.

c. Prepare the journal entry needed on January 2, 2022.

d. Using Excel or a financial calculator, calculate the amount of revenue to be recognized for Product B and prepare the journal entry needed on January 2, 2025.

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