P18-1 (allocate transaction price, upfront fees) tablet tailors sells

P18-1 (Allocate Transaction Price, Upfront Fees) Tablet Tailors sells tablet PCs combined with Internet service (Tablet Bundle A) that permits the tablet to connect to the Internet anywhere (set up a Wi-Fi hot spot). The price for the tablet and a 4-year Internet connection service contract is $500. The standalone selling price of the tablet is $250 (cost to Tablet Trailors $175). Tablet Trailors sells the Internet access service independently for an upfront payment of $100, plus $72 payments at the beginning of years 2-4 of the contract. With an imputed interest rate of 8%, the standalone value of the srvice is $286. On January 2, 2014, Tablet Trailors signed 100 contracts, receiving a total $31,445 in cash (full payment of $500 each in cash, less the upfront fee for Internet service, less the present value of the note for the future service plan payments), delivered tablets, and started service for 100 tablet packages.

Instructions

a.) Prepare any journal entries to record this revenue arrangement on January 2, 2014.

b.) Prepare any journal entries to record this revenue arrangement on December 31, 2015.

c.) Prepare any journal entries to record this revenue arrangement on December 31, 2016.

d.) 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.

 

 

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