After observing the growing demand for computer services by seniors, Trevor quit his job at Best Buy and started a company, SimpleType Inc. (STI) at the end of 2019. He took out a 2-year bank loan of $60,000 and invested his savings of $100,000 in 10,000 shares of STI. The annual rate of the bank loan is 8%. The bank requires STI to provide financial statements when Trevor requests renewal of the bank loan. SimpleType Inc. sells computers to seniors who are interested in learning how use computers to send emails and surf the internet. Because seniors tend to have difficulty setting up computers, STI both sells computers to seniors and goes to their homes to install them. It takes approximately one month from the time the order is placed to the time of the in-house installation service. The retail price of the computer with a 1-year assurance-type warranty is $1,300. The cost of a computer for STI is $800. STI usually charges $200 for in-house installation. The estimated cost of assurance warranty claims is $55. STI also provides introductory courses on common-use software and popular websites for seniors, e.g., Microsoft Word and Excel, Facebook and Pinterest. The course, if sold alone, would cost $1,000 for ten 3- hour classes. STI sells a package of computer with warranty, in-house installation, and ten 3-hour classes for $2,000; the classes are to be taken within 1 year. During 2020, STI sold 200 packages, all of which were paid for. 150 of the 200 computers were installed; 30 computers were delivered but not installed; and 20 computers were not delivered. These 200 customers took 850 classes. Required (Q3-5): i) Based on the information, identify three important users of STI's financial statements and discuss their objectives. ii) Determine how STI should recognize each sale of computer and class packages during 2020? Use the five-step model for revenue recognition in preparing your response. iii) Prepare journal entries to record transactions associated with the sale of 200 packages in 2020. After observing the growing demand for computer services by seniors, Trevor quit his job at Best Buy and started a company, SimpleType Inc. (STI) at the end of 2019. He took out a 2-year bank loan of $60,000 and invested his savings of $100,000 in 10,000 shares of STI. The annual rate of the bank loan is 8%. The bank requires STI to provide financial statements when Trevor requests renewal of the bank loan. SimpleType Inc. sells computers to seniors who are interested in learning how use computers to send emails and surf the internet. Because seniors tend to have difficulty setting up computers, STI both sells computers to seniors and goes to their homes to install them. It takes approximately one month from the time the order is placed to the time of the in-house installation service. The retail price of the computer with a 1-year assurance-type warranty is $1,300. The cost of a computer for STI is $800. STI usually charges $200 for in-house installation. The estimated cost of assurance warranty claims is $55. STI also provides introductory courses on common-use software and popular websites for seniors, e.g., Microsoft Word and Excel, Facebook and Pinterest. The course, if sold alone, would cost $1,000 for ten 3- hour classes. STI sells a package of computer with warranty, in-house installation, and ten 3-hour classes for $2,000; the classes are to be taken within 1 year. During 2020, STI sold 200 packages, all of which were paid for. 150 of the 200 computers were installed; 30 computers were delivered but not installed; and 20 computers were not delivered. These 200 customers took 850 classes. Required (Q3-5): i) Based on the information, identify three important users of STI's financial statements and discuss their objectives. ii) Determine how STI should recognize each sale of computer and class packages during 2020? Use the five-step model for revenue recognition in preparing your response. iii) Prepare journal entries to record transactions associated with the sale of 200 packages in 2020
