Question

Carla 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. Carla 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 $505. The standalone selling price of the tablet is $263 (the cost to Carla Company is $160). Carla Company sells the Internet access service independently for an upfront payment of $296. On January 2, 2020, Carla Company signed 100 contracts, receiving a total of $50,500 in cash. Carla 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 $607. Carla Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $145. Carla Company signed 190 contracts for Carla Bundle B on July 1, 2020, receiving a total of $115,330 in cash. 2

Answer 1

	Standalone price	Proportion	Allocation
Tablet	263	47.05%	238
Internet	296	52.95%	267
Total	559		505

Date	Account title	Dr	cr
2-Jan	Cash	50500
	Unearned service revenue (267*100)		26700
	Sales Revenue (238*100)		23800
	(to record sales and performance obligation for service recorded)
	Cost of Good sold	16000
	Inventory		16000
	(to record cost of goods sold)
	Assuming that when cash is received at that time only tablet is sold)
Dec 31, 2020	Unearned service revenue	8900
	Service revenue (26700/3*1)		8900
	(being one-year service revenue earned)

2)

	Standalone price	Proportion	Allocation
Tablet	263	37.36%	226.76
Internet	296	42.05%	255.22
Service plan	145	20.59	125.02
Total	704		607

	Cash (190*607)	$115,330
July 1, 2020	Unearned service revenue-Internet (255)*190)		48491
	Unearned service revenue-Maintaenece 125*190)		23754
	Sales Revenue (227*190		43085
	(to record sales and performance obligation for service recorded)
	Cost of Good sold (160*190)	30400
	Inventory		30400
	(to record cost of goods sold)
31-Dec	Unearned service revenue-Internet (48491/3*6/12)	8082
	Unearned service revenue -Maintenance (23754/3*6/12)	3959
	Service revenue-Internet		8082
	Service revenue-Maintenance		3959
	(being six months service revenue earned)