Recording Entries for Contracts with Multiple Performance Obligations

Amazon.com, Inc., provides the following description of its revenue recognition policies in its second quarter of 2020 10-K report.

Revenue

Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for return Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for return allowances, promotional discounts, and rebates. Revenue also excludes any amounts collected on behalf of third parties, including sales and indirect taxes. In arrangements where we have multiple performance obligations, the transaction price is allocated to each performance obligation using the relative stand-alone selling price. We generally determine stand-alone selling prices based on the prices charged to customers or using expected cost plus a margin.

A description of our principal revenue generating activities is as follows:

Retail salesWe offer consumer products through our online and physical stores. Revenue is recognized when control Retail salesWe offer consumer products through our online and physical stores. Revenue is recognized when control of the goods is transferred to the customer, which generally occurs upon our delivery to a third-party carrier or, in the case of an Amazon delivery, to the customer.

Third-party seller servicesWe offer programs that enable sellers to sell their products in our stores and fulfill Third-party seller servicesWe offer programs that enable sellers to sell their products in our stores and fulfill orders through us. We are not the seller of record in these transactions. The commissions and any related fulfillment and shipping fees we earn from these arrangements are recognized when the services are rendered, which generally occurs upon delivery of the related products to a third-party carrier or, in the case of an Amazon delivery, to the customer.

Subscription servicesOur subscription sales include fees associated with Amazon Prime memberships and access to Subscription servicesOur subscription sales include fees associated with Amazon Prime memberships and access to content including digital video, audiobooks, digital music, ebooks, and other non-AWS subscription services. Prime memberships provide our customers with access to an evolving suite of benefits that represent a single stand-ready obligation. Subscriptions are paid for at the time of or in advance of delivering the services. Revenue from such arrangements is recognized over the subscription period.

AWSOur AWS sales arrangements include global sales of compute, storage, database, and other services. Revenue is AWSOur AWS sales arrangements include global sales of compute, storage, database, and other services. Revenue is allocated to services using stand-alone selling prices and is primarily recognized when the customer uses these services, based on the quantity of services rendered, such as compute or storage capacity delivered on-demand. Certain services, including compute and database, are also offered as a fixed quantity over a specified term, for which revenue is recognized ratably. Sales commissions we pay in connection with contracts that exceed one year are capitalized and amortized over the contract term.

OtherOther revenue primarily includes sales of advertising services, which are recognized as ads are delivered OtherOther revenue primarily includes sales of advertising services, which are recognized as ads are delivered based on the number of clicks or impressions.

Suppose that Amazon.com sells a Fire Tablet with a one-year membership in Amazon Prime. Assume that the device has a stand-alone selling price of $248, and a one-year Prime membership costs $270. Suppose the price charged for the combination is $450, and a customer buys the combination on July 1.

Record the July 1 transaction described above in journal entry form.

Note: Round answers to two decimal places.

	Account	Debit	Credit
	Accounts receivableAllowance for uncollectible accountsBad debts expenseCashSales revenueUnearned revenue		Answer
	Accounts receivableAllowance for uncollectible accountsBad debts expenseCashSales revenueUnearned revenue		Answer
	Accounts receivableAllowance for uncollectible accountsBad debts expenseCashSales revenueUnearned revenue		Answer
	To record bundle sale.
	Accounts receivableAllowance for uncollectible accountsBad debts expenseCashSales revenueUnearned revenue		Answer
	Accounts receivableAllowance for uncollectible accountsBad debts expenseCashSales revenueUnearned revenue		Answer
	To recognize membership revenue.