Assignment #1: Revenue Recognition Due: Sunday, Week 4 Points: 75 I. Allocate Transaction Price, Upfront Fees 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, 2020, 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, 2020, receiving a total of $120,000 in cash.

Instructions:

(a) Prepare any journal entries to record the revenue arrangement for Tablet Bundle A on January 2, 2020, and December 31, 2020.

(b)Prepare any journal entries to record the revenue arrangement for Tablet Bundle B on July 1,2020, and December31, 2020.

(c) Repeat the requirements for part (a), assuming that Tablet Tailors has no reliable data with which to estimate the stand- alone selling price for the Internet service.

II. Five-Step Revenue Process Revenue is recognized based on a five-step process that is applied to a companys revenue arrangements.

Instructions: (a) Briefly describe the five-step process. (b) Explain the importance of contracts when analyzing revenue arrangements. (c) How are fair value measurement concepts applied in implementation of the five-step process? (d) How does the five-step process reflect application of the definitions of assets and liabilities?