Computers Inc. sells personal computers as well as home Internet service. On July 1, 2016, Computers sold a computer with a three-year Internet connection service contract and a three-year extended warranty on the computer. The customer paid $2,000 cash for this special offer. Each component could have been purchased separately by the customer. The stand-alone selling price of the computer is $550 (cost to Computers Inc. $280). The stand-alone value of the 3 three-year Internet service is $1,800 and the extended warranty is $50 (if purchased and paid for today). Assume the costs to provide the Internet and extended warranty are incurred fairly even throughout the three-year period. The customer takes the computer home on July 1, 2016.

Computers Inc. has a December 31 year end and prepares financial statements annually.

Required

How much of the $2000 revenue will be recorded in each year (2016 through to 2019)? Show all calculations and label all amounts.

(b) Prepare the journal entries to record the above transaction for 2016 and 2017.