Question

Problem 18-1 (Part Level Submission) Pronghorn 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. 2. Pronghorn 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 $455. The standalone selling price of the tablet is $234 (the cost to Pronghorn Company is $171). Pronghorn Company sells the Internet access service independently for an upfront payment of $270. On January 2, 2017, Pronghorn Company signed 90 contracts, receiving a total of $40,950 in cash. Pronghorn 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 $551. Pronghorn Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $140. Pronghorn Company signed 180 contracts for Pronghorn Bundle B on July 1, 2017, receiving a total of $99,180 in cash.

Answer 1

The revenue for the bundled product/service will be allocated based on the ratio of standalone price for Calculation of allocation of Revenue of $99180: No. of Total Item Stand alone Price Revenue per contract Contract Revenue (A) (B) = $551 x (A)/$644 (D) (D) X(C) Tablet $234 [($551 x $234)/$644] $200 180 $36,037 3 year internet connection $270 [($551 x $270)/$644] $231 180 $41,582 3 year tablet service $140 [($551 x $140)/$644] $120 180 $21,561 $644 $551 $99,180 Credit Debit $99,180 Journal Entry Date Account Title July 1, 2017 Cash Sales Unearned Service Revenue - Internet Unearned Service Revenue - Tablet July 1, 2017 Cost of good sold (180 x$171] Mercandise Inventory Dec 31, 2017 | Unearned Service Revenue - Internet Unearned Service Revenue - Tablet Servie Revenue $36,037 $41,582 $21,561 $30,780 $30,780 $6,930 $3,593 [$41582/36 x 6] [$21561/36 x 6] $10,524