Question

Stellar 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. Stellar 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 Stellar Company is $171). Stellar Company sells the Internet access service independently for an upfront payment of $270. On January 2, 2017, Stellar Company signed 90 contracts, receiving a total of $40,950 in cash. 2. Stellar 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. Stellar Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $140. Stellar Company signed 180 contracts for Stellar Bundle B on July 1, 2017, receiving a total of $99,180 in cash.

(a) Prepare any journal entries to record the revenue arrangement for Stellar 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.) Date Account Titles and Explanation Debit Credit Jan. 2, 2017Jul. 1, 2017Dec. 31, 2017 (To record sales) (To record cost of goods sold) Jan. 2, 2017Jul. 1, 2017Dec. 31, 2017 Click if you would like to Show Work for this question: Open Show Work

Answer 1

The revenue for the bundled product/service will be allocated based on the ratio of standalone price for each product/service Calculation of allocation of Revenue of $40950: Total No. of Stand alone Price Revenue per contract Item Ratio Contract Revenue (D) x (C) (B) (A) /$504 $455 x (B) (A) $234 (C) 0.46 [$455 x 0.46 0.54 [$455 x 0.54] (D) 90 $18,837 90 $22,113 $40,950 Tablet $209 $246 $455 3 year internet connection $270 $504 1.00 Journal Entry Date Debit Credit Account Title $40,950 Cash Jan 2, 2017 Sales $18,837 $22,113 Deferred Revenue Cost of good sold [90 x$171] Mercandise Inventory Dec 31, 2017 Service Revenue Deferred Revenue $15,390 Jan 2, 2017 $15,390 $7,371 $7,371