Question

Buffalo 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. Buffalo 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 $471. The standalone selling price of the tablet is $243 (the cost to Buffalo Company is $163). Buffalo Company sells the Internet access service independently for an upfront payment of $283. On January 2, 2017, Buffalo Company signed 100 contracts, receiving a total of $47,100 in cash.

2. Buffalo 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 $565. Buffalo Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $159. Buffalo Company signed 180 contracts for Buffalo Bundle B on July 1, 2017, receiving a total of $101,700 in cash.

In response to competitive pressure for Internet access for Buffalo Bundle A, after 2 years of the 3-year contract, Buffalo 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 $84 (which equals the standalone selling of the revised Internet service package) extends access for 2 more years of Internet connection. 40 Buffalo Bundle A customers sign up for this offer.

Prepare the journal entry when the contract is signed on January 2, 2019, for the 40 extended contracts. Assume the modification does not result in a separate performance obligation.

Prepare the journal entry on December 31, 2019, for the 40 extended contracts (the first year of the revised 3-year contract).

Answer 1

Solution,

Given a certain "Buffalo Company" is into selling PCs, Tablets and Internet services in various combo versions and standalones. It has 2 Bundles A & B.

Bundle A : Tablet (standalone) = $243 , Internet Services (standalone) =$283 and

Tablets+ 3 years Internet services =$471

Received 100 contracts in cash total =$47,100 on Jan 2nd ,2017 for 3 years tenture which will last till the 31st Dec,2019.

Bundle B : Tablet + Internet services + PC upgrades all services for 3 years =$565

Tablet services for 3 year=$159

Received 180 contracts in cash total=$101,700, on July 1st ,2017 after 6 months of Bundle A contracts.

Journal Entry of Buffalo Company with respect to Bundle A as on Jan 2nd ,2019

Date   Particulars Debit Amount Credit Amount

Jan 1st Prepaid Dr 3,360

To Sales ac Cr 3,360

(recieved prebooked extension for servies 40 in number each $84)

as the extension doens't disturb the existing contract and only activates from jab 2nd ,2020

Dec 31st Cash Dr 3,360

to Prepaid ac Cr 3,360

(trasfered amount from prepaid account for the service to be rendered from now on, 2020 the 1st year of 2 extended years)

TOTAL Cash = $3,360 ( recieved for the 2 years extended contract services)