Question
On June 1, 2021, Kingston Computers delivered a computer system to a buyer. The agreed-upon price is $36,000, paid in cash on June 1, 2021.
On June 1, 2021, Kingston Computers delivered a computer system to a buyer. The agreed-upon price is $36,000, paid in cash on June 1, 2021. Included in this price is a 12-month assurance warranty that the system will be fixed or replaced if it does not perform to certain specifications and 30 hours of service to maintain the system over that period. The assurance warranty is not sold separately. The stand-alone selling price for the computer system is $34,000 and for the maintenance service, it is $2,400. The company also estimates that, based on past experience, the warranty costs for defective product should be estimated at $3,200. By December 31, 2021, the year end of the company, 12 hours of service are performed. Round amounts to the nearest dollar.
Required
- Allocate the contract price to the separate performance obligations. (3 marks)
- Prepare the journal entries for Kingston Computers in 2021, related to the above agreement as well as any adjusting entries at its December 31, year- end. Ignore the entry for cost of goods sold. (7 marks)
Entries on June 1, 2021: | Debit | Credit |
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