Question
P18.1 (LO2, 3) (Allocate Transaction Price, Upfront Fees)Tablet Tailors sells tablet PCs combined with Internet service, which permits the tablet to connect to the Internet
P18.1 (LO2, 3) (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. Itoffers 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, 2019, 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 thetablet or the Internet
connections) during the 3-year contract period. That product bundle sells for
600. Tablet Tailors provides the 3-year tablet serviceplan as a separate
product with a standalone selling price of 150. TabletTailors signed 200
contracts for Tablet Bundle B on July 1, 2019, receiving a total of 120,000
in cash.
Instructions
a. journal entries to record the revenue arrangement for Tablet
Bundle A on January 2, 2019, and December 31, 2019.
b. journal entries to record the revenue arrangement for Tablet
Bundle B on July 1, 2019, and December 31, 2019.
c.Repeat the requirements for part (a), assuming that Tablet Tailors has no
reliable data with which to estimate the standalone selling price for the
Internet service.
P18.2 (LO2, 3, 4) (Allocate Transaction Price, Modification of Contract)Refer
to the Tablet Bundle A revenue arrangement in P18.1. In response to
competitive pressure for Internet access for Tablet BundleA, after 2 years of the
3-year contract, Tablet Tailors offers a modified contract and extension incentive.
The extended contract services are similar to those provided in the first 2 years
of the contract. Signing the extension and paying 90 (which equals the
standalone selling of the revised Internet service package) extends access for 2
more years of Internet connection. Forty Tablet BundleA customers sign up for
this offer.
Instructions
a. journal entries when the contract is signedon January 2, 2021,
for the 40 extended contracts. Assume the modification does not result in a
separate performance obligation.
b.journal entries on December 31, 2021, for the 40 extended
contracts (the first year of the revised 3-year contract).
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