Question

Wildhorse 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.		Wildhorse 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 $523. The standalone selling price of the tablet is $248 (the cost to Wildhorse Company is $178). Wildhorse Company sells the Internet access service independently for an upfront payment of $323. On January 2, 2017, Wildhorse Company signed 100 contracts, receiving a total of $52,300 in cash.
2.		Wildhorse 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 $633. Wildhorse Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $145. Wildhorse Company signed 200 contracts for Wildhorse Bundle B on July 1, 2017, receiving a total of $126,600 in cash.

Prepare any journal entries to record the revenue arrangement for Wildhorse Bundle A on January 2, 2017, and December 31, 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,125.)

Prepare any journal entries to record the revenue arrangement for Wildhorse Bundle B on July 1, 2017, and December 31, 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,125.)

Repeat the requirements for part (a), assuming that Wildhorse Company has no reliable data with which to estimate the standalone selling price for the Internet service. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,125.)

Answer 1

It is assumed that the internet connection and the service of the tablets and connection can be priced at discounted prices as add-on to sale of tablet PC, the discount being cross sell discount. The tablet PC will be sold at independent contract price and discounts will be given only on internet connection and service of tablets.

a) On 2 January 2017,

Bank account Debit 52300

Advance from customers account Credit 52300

On fulfilment of the contract,

Advance from customers account Debit 52300

Sale of tablet PC Credit 24800

Sale of Internet connection Credit 27500

COGS Debit 17800

Tablet PC account Credit 17800

b) On 1 July 2017,

Bank account Debit 126600

Advance from customers account Credit 126600

On fulfilment of the contract,

Advance from customers account Debit 126600

Sale of tablet PC Credit 49600

Sale of Internet connection Credit 53143

Sale of service contracts Credit 23857

COGS Debit 35600

Tablet PC account Credit 35600

Sale price of tablet $248 per tablet. The balance sale price $385 ($633 - $248) is divided into Internet connection sale and service contract sale in the ratio 323:145.

The answer to the third requirement is same as a) as we have assumed that the sale price of tablet PC as constant and discount being passed on to the customer on the Internet connection. Sale of Internet connection is also the balancing figure in a).