Question

(1) Richardson Company sells tablet PCs bundled with Internet service, which permits the tablet to connect to the Internet anywhere and set up a Wi-Fi hot spot. Richardson's bundle 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 $600. Richardson sells the tablet, internet access service, and service plan independently for a standalone price of $265, $275, and $155, respectively. Richardson Company signed 250 contracts on April 1, 2019, receiving a total of $150,000 in cash. Required: Prepare any journal entries to record the revenue arrangement for Richardson on April 1. 2019 and December 31, 2019. When allocating the bundle price of $600 to individual product and services, round the allocated prices to whole dollar. (5 points) (2) On May 3, 2017, Forest Company consigned 60 freezers, costing $500 each, to Remington Company. The cost of shipping the freezers amounted to $900 and was paid by Forest Company. On December 30, 2017, a report was received from the consignee, indicating that froozers had been sold for $800 cach. Remittance was made by the consignee for the amount due after deducting a commission of 10%, advertising of $550 Required: Provide journal entries for Consignor and Consignee, respectively, to record the following events. (5 points) Forest Company (Consignor) Remington Company (Consignee) Notification of sales and expenses and remittance of amount due Adjustment of inventory on consignment for cost of sales

Answer 1

(1) Allocation of bundle price to product and service:

Entry to record Cash Received on Apr 1, 2019:

Dr. Cash $ 150,000

Cr. Unearned Revenue $ 150,000

(To record cash received against 250 contracts @ $ 600 EA)

Entry to record on Dec 31, 2019, Based on following table:

Standalone Product & Service	Details	Reference
Tablet	$                265	A
Wi-fi Internet Service	$                275	B
Repair service for 3 years	$                155	C
Total	$                695	D
Bundle Price per contract	$                600
Contracts signed as of Apr 1	250
Total Cash Received	$        150,000	E
Allocation to product & Service (ROUNDED OFF)
Tablet	$          57,194	E/D*A
Wi-fi Internet Service	$          59,353	E/D*B
Repair service for 3 years	$          33,453	E/D*C
Total	$        150,000

Repair service for year 2019 = Total Repair Revenue divided by 3 years multiplied by 9 months (i.e.) from Apr-Dec ($ 33453 / 36 months * 9 months) = 8,363

Dr. Unearned Revenue $ 124,910

Cr. Revenue from Sale of Material $ 57,194

Cr. Revenue from Internet Service $ 59,353

Cr. Revenue from Other services $ 8,363

(To Record revenue rendered in year 2019)

Thus, balance of $ 25,090 ($150,000-$124910) will be in "Unearned Revenue" account as of year ending 2019 and will get reported in Balance sheet.

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(2) Journal entries in the books of Consignor and Consignee:

In the books of Forest Company (consignor)					In the books of Remington Company (consignee)
To Record Consignment of Goods (60 freezers @ $ 500 Ea)
3-May-17	Dr	Consignment to Remington Company	30,000		No Entry
	Cr	Goods Sent on Consignment		30,000
To Record shipping charges on Consignment by consignor
3-May-17	Dr	Consignment to Remington Company	900		No Entry
	Cr	To Cash at Bank		900
To Record sale of Goods (45 freezers @ $ 800 EA)
30-Dec-17	Dr	Remington Company	36,000		30-Dec-17	Dr	Cash at Bank a/c	36,000
	Cr	To Consignment to Remington Company		36,000		Cr	To Forest Company		36,000
To Record advertising charges incurred on Consignment by consignee
30-Dec-17	Dr	Consignment to Remington Company	550		30-Dec-17	Dr	Forest Company	550
	Cr	To Remington Company		550		Cr	To Cash at bank a/c		550
To Record 10% commission charges on sale of Consignment ((45*$800)*10%)
30-Dec-17	Dr	Consignment to Remington Company	3,600		30-Dec-17	Dr	Forest Company	3,600
	Cr	To Remington Company		3,600		Cr	To Commission account		3,600
To Record Sale proceeds (sale amount minus charges incurred by consignee minus commission) = 36000-550-3600
30-Dec-17	Dr	Cash at Bank	31,850		30-Dec-17	Dr	Forest Company	31,850
	Cr	To Remington Company		31,850		Cr	To Cash at Bank account		31,850
To Record Adjustment of inventory (60-45 = 15 freezers on stock) So cost of 15 @ $ 500 Ea + apportionment of shipping charges $ 900 to 15 freezers = 900/60*15)
30-Dec-17	Dr	Consignment Stock	7,725		No Entry
	Cr	To Consignment to Remington Company		7,725
To Record profit on sale of consignment
30-Dec-17	Dr	Consignment to Remington Company	8,675		30-Dec-17	Dr	Commission Account	3,600
	Cr	To Profit and Loss a/c		8,675		Cr	To Profit and loss A/c		3,600
		((45 freezers * ($800-$500)) minus Freight charges of $ 900 / 60*45 minus consignee charges of ($ 3600+550)

Balance in Goods Sent on consignment account will move to Trading account; balance in Consignment Stock will gets reported in Balance Sheet.