Question

Waterway Company 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. It offers two bundles with the following terms.
a. Shamrock Company 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. It offers two bundles with the following terms. 1. Shamrock 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 $469. The standalone selling price of the tablet is $230 (the cost to Shamrock Company is $157). Shamrock Company sells the Internet access service independently for an upfront payment of $292. On January 2, 2017, Shamrock Company signed 100 contracts, receiving a total of $46,900 in cash.

b. Shamrock Bundle B includes the tablet and Internet service plus a service plan for the tablet PC (for any repairs or upgrades to the tablet or the Internet connections) during the 3-year contract period. That product bundle sells for $574. Shamrock Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $145. Shamrock Company signed 220 contracts for Shamrock Bundle B on July 1, 2017, receiving a total of $126,280 in cash.

Required:
a. Prepare any journal entries to record the revenue arrangement for Headland Bundle A on January 2, 2017, and December 31, 2017.
b. Prepare any journal entries to record the revenue arrangement for Headland Bundle B on July 1, 2017, and December 31, 2017.

Answer 1

Answer:

Waterway or Shamrock Company

Journal Entries:

Bundle A:

Debit Cash $46,900

Credit Tablet Revenue $20,665

Credit Annual Internet Access Revenue $8,745

Credit Deferred Revenue: Internet Access $17,490

To record revenue from Bundle A.

Debit Cost of Sale of Tablets $15,700

Credit Tablet Inventory $15,700

To record the cost of tablets sold.

Bundle B:

Debit Cash $126,280

Credit Tablet Revenue $43,545

Credit Annual Tablet Service Plan $9,151

Credit Annual Internet Access Revenue $18,428

Credit Deferred Revenue: Service Plan $18,300

Credit Deferred Revenue: Internet Access $36,856

To record revenue from Bundle B.

Debit Cost of Sale of Tablets $34,540

Credit Tablet Inventory $34,540

To record the cost of tablets sold.

Explanation:

a) Data and Calculations:

Bundle A contract = $469

Tablet standalone selling price = $230 (Total = $23,000 ($230 * 100)

Cost of tablet = $157 (Total costs of 100 tablets = $15,700)

Internet access service standalone selling price = $292 (Total = $29,200)

Total standalone selling price per bundle = $522 (Total = $52,200)

Contracts signed = 100

Revenue received = $46,900

Revenue from Tablet = $23,000/$52,200 * $46,900 = $20,665

Revenue from Internet Access = $29,200/$52,200 * $46,900 = $26,235

Annual interest access = $8,745 ($26,235/3)

Bundle B contract = $574

Tablet standalone selling price = $230 (Total = $50,640 ($230 * 220)

Cost of tablet = $157 (Total costs = $34,540 ($257 * 220)

3-year Tablet Service Plan standalone selling price = $145 (Total = $31,900 ($145 * 220)

Internet access service standalone selling price = $292 (Total = $64,240 ($292 * 220)

Total standalone selling price per bundle = $667 (Total = $146,740 ($667 * 220)

Contracts signed = 220

Revenue received = $126,200

Revenue from Tablet = $50,600/$146,740 * $126,280 = $43,545

Revenue from 3-year Tablet Service Plan = $31,900/$146,740 * $126,280 = $27,452

Annual revenue = $9,151 ($27,452/3)

Revenue from Internet Access = $64,240/$146,740 * $126,280 = $55,283

Annual revenue from internet access = $18,428 ($55,283/3)