Question

Culver 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. Culver 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 $496. The standalone selling price of the tablet is $238 (the cost to Culver Company is $184). Culver Company sells the Internet access service independently for an upfront payment of $306. On January 2, 2020, Culver Company signed 110 contracts, receiving a total of $54,560 in cash. 2. Culver 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 $606. Culver Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $136. Culver Company signed 220 contracts for Culver Bundle B on July 1, 2020, receiving a total of $133,320 in cash. In response to competitive pressure for Internet access for Culver Bundle A, after 2 years of the 3-year contract, Culver Company offers a modified contract and extension incentive. The extended contract services are similar to those provided in the first 2 years of the contract. Signing the extension and paying $100 (which equals the standalone selling of the revised Internet service package) extends access for 2 more years of Internet connection. 40 Culver Bundle A customers sign up for this offer.

Prepare the journal entry when the contract is signed on January 2, 2022, for the 40 extended contracts. Assume the modification does not result in a separate performance obligation. (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.) Account Titles and Explanation Debit Credit

Prepare the journal entry on December 31, 2022, for the 40 extended contracts (the first year of the revised 3-year contract). (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.) Account Titles and Explanation Debit Credit Click if you would like to Show Work for this question: Open Show Work

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Answer 1

Date	Account title & Explanation	Debit	Credit
2-Jan-22	Cash (100*40)	$    4,000
	Unearned service revenue		$     4,000
	(To record the receipt of cash for sales and service)
31-Dec-22	Unearned service revenue	$    2,573
	Service revenue ((279/3*40+4000)/3)		$     2,573
	(To record the recognition of service revenue)

	Standalone selling price		Actual Selling Price	Allocation
Tablet	$           238	43.75%	$496	$       217
Internet Service	$           306	56.25%		$       279
Total	$           544			$       496