Question

In: Accounting

On August 1, 2019, Dillard sold 800 bundles super shaver complete. Each bundle sold for $750...

  1. On August 1, 2019, Dillard sold 800 bundles super shaver complete. Each bundle sold for $750 a bundle consisting of 1) super shaver with a retail cost of $100 and a 24 month subscription to super shaver supplies. The supplies if sold separately would sell for $30 per month. Dillard recorded sales revenue of $600,000 in 2019 related to these bundles. All costs related to the super shaver and the shipments of supplies were expensed properly.

Please prepare all appropriate journal entries for the year ending 12/31/2019

Solutions

Expert Solution

Whenever the transaction involves two performance obligation the transaction price has to be allocated between the performance obligations (i.e. goods and services in this case) based on the standalone selling prices and recorded accordingly

Allocation of Transaction price between good and service

Transaction price = 750 per bundle

Super shaver = 800 units x 91.46 per unit => 73,171

Subscription = 800 units x 658.54 per unit => 526,829

Journal entries

Income from subscription for the period ended 31-Dec-19 => 526,829 x 5 months (Aug - Dec) / 24 months (contract period) => 109,756

The subscription income has to be recognized over the contracted period of 24 months.

ekkarill92 answered 2 years ago
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