Question

Kingbird 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. Kingbird 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 $488. The standalone selling price of the tablet is $252 (the cost to Kingbird Company is $178). Kingbird Company sells the Internet access service independently for an upfront payment of $285. On January 2, 2020, Kingbird Company signed 90 contracts, receiving a total of $43,920 in cash. 2. Kingbird 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 $597. Kingbird Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $154. Kingbird Company signed 190 contracts for Kingbird Bundle B on July 1, 2020, receiving a total of $113,430 in cash.

Prepare any journal entries to record the revenue arrangement for Kingbird Bundle A on January 2, 2020, and December 31, 2020.

Prepare any journal entries to record the revenue arrangement for Kingbird Bundle B on July 1, 2020, and December 31, 2020.

Repeat the requirements for part (a), assuming that Kingbird Company has no reliable data with which to estimate the standalone selling price for the Internet service.

Answer 1

Kingbird Company
a)	Total Revenue Number of Contracts* Price=(90*$488)	43920
	Revenue allocation between two obligations on the basis of standalone selling price
		Tablet	Internet Service	Total
	Standalone Selling Price	$               252.00	$                285.00	$                       537.00
	Revenue allocation to tablet=($252)/$537)*$488	$               229.01
	Revenue allocation to Internet Service=($285/$537)*$488		$                258.99
Date	General,Journal	Debit	Credit
02-Jan-20	Cash	$         43,920.00
	To Unearned Service Revenue(90*$259)		$          23,309.50
	To Sales Revenue(90*$229)		$          20,610.50
	(Being amount of Sales revenue and Unearned service revenue)
	Cost of goods sold(90*$178)	$         16,020.00
	To Inventory		$          16,020.00
	(Being amount of cost of goods sold)
31-Dec-20	Unearned Revenue($23309/3)	$            7,769.83
	To service Revenue		$             7,769.83
	(Unearned Revenue being earned)
b)	Total Revenue Number of Contracts* Price=(190*$597)	113430
	Revenue allocation between three obligations on the basis of standalone selling price
		Tablet	Internet Service	Tablet Service Plan	Total
	Standalone Selling Price	$               252.00	$                285.00	$                       154.00	$ 691.00
	Revenue allocation to tablet=($252)/$691)*$597	$               217.72
	Revenue allocation to Internet Service=($285/$691)*$597		$                246.23
	Revenue allocation to Tablet Service Plan=($154/$691)*$597			$                       133.05
Date	General,Journal	Debit	Credit
01-Jul-20	Cash	$      1,13,430.00
	To Unearned Service Revenue(Internet)=(190*$246)		$          46,783.72
	To Unearned Service Revenue(Maintenance)=(190*$133)		$          25,279.62
	To Sales Revenue(190*$218)		$          41,366.66
	(Being amount of Sales revenue and Unearned service revenue)
	Cost of goods sold(190*$178)	$         33,820.00
	To Inventory		$          33,820.00
	(Being amount of cost of goods sold)
31-Dec-20	Unearned Revenue-Internet=($46784/3)*6/12	$            7,797.29
	Unearned Revenue-Maintenance=($25280/3)*6/12	$            4,213.27
	To service Revenue		$          12,010.56
	(Unearned Revenue being earned)
c)	Total Revenue Number of Contracts* Price=(90*$488)	$         43,920.00
	Revenue allocation between two obligations when no reliable data,distributed equally.
		Tablet	Internet Service	Total
	Standalone Selling Price	$               244.00	$                244.00	$                       488.00
	Revenue allocation to tablet=($244)/$488)*$488	$               244.00
	Revenue allocation to Internet Service=($244/$488)*$488		$                244.00
Date	General,Journal	Debit	Credit
02-Jan-20	Cash	$         43,920.00
	To Unearned Service Revenue(90*$244)		$                21,960
	To Sales Revenue(90*$244)		$                21,960
	(Being amount of Sales revenue and Unearned service revenue)
	Cost of goods sold=(90*178)	16020
	To Inventory		16020
	(Being amount of cost of goods sold)
31-Dec-20	Unearned Revenue=($21960/3)	$            7,320.00
	To service Revenue		$             7,320.00
	(Unearned Revenue being earned)