Question

Crindlen Inc sells a variety of computer products and data plans.

Computers are compatible with data and computers do not need to be repaired or serviced by the company.

Customers can pick to buy a computer or data plans separately; however, to there is a bundle they offer with discounts, sales staff encourage customers to bundle their transacitons.

On Aug 27, the company offered a special. Customers who ordered a 2-year data service plan received the latest computer - The Gen4. The Gen4 retails for $800 and the monthly data service plan retails for $50 / month. The company paid $200 to make the computer.

The total price charged to the customer was $1,300 paid in cash when the contract was first signed.

Customers obtained the computer on Aug 1 and their cell phone data services were activated immediately.

What is the adjusting journal entry would be recorded for August 31?

Answer 1

First we need to find the allocated price of data service, based on stand alone selling Price

Offer price = $1300

	stand alone selling Price	Allocation
Computer	800	1300 * 800 / 2000 = 520
Data service	$50 * 24 = 1200	1300 * 1200 / 2000 = 780
Total	2000	1300

On Aug 1, Sale of computer is earned sales revenue, however, the sale of data service is unearned service revenue.

On Aug on the date if sales entry like

Date	Account	Debit	Credit
Aug 1	cash	1300
	sales revenue - computer		520
	unearned service revenue		780
	Cost of goods sold	200
	Inventory - computer		200

ans:

So, adjusting entry on Aug 31, is recognize the one month revenue on sales of data service

Adjusting entry

Date	Account	Debit	Credit
Aug 31	Unearned service revenue (780 / 24)	$32.50
	Service revenue		$32.50
	(recognize one month service revenue )