Question

Accorsi & Sons specializes in selling upscale home theater systems. As a package deal, Accorsi sells a premium home theater package that includes a projector and a one year subscription to premium cable channels for $2,100. Accorsi sells individual projectors for $2,000 and sells individual one-year subscriptions to premium cable channels for $500.

On March 1, 2018, Accorsi delivers a premium home theater package to Valley Hills Nursing Home, which includes the projector and the one-year subscription to the premium cable channels at a price of $2,100. On April 15, 2018, Accorsi receives $2,100 from Valley Hills Nursing Home.

Required:

1. Identify the performance obligation(s) in the premium home theater package?

2. How much revenue will be allocated to each performance obligation?

3. What journal entry (if any) will Accorsi record on March 1, 2018 to record the revenue from the sale of the premium home theater package?

4. What journal entry (if any) will Accorsi record on March 31, 2018?

5. What journal entry will Accorsi record when they receive payment from Valley Hills Nursing Home?

Answer 1

Ans.1 = There are two performance obligation in the premium Home theater package, namely:

A) Individual Projector

B) One Year Subscryption to Premium Cable Channels.

Ans.2 = Revenue to be allocated to both Performance obligation would be in the ratio of 2000:500 for Projector and Subscription for Cable channel

i.e. =2100*(2000/2500) = 1680 to Projector

= 2100*(500/2500) = 420 to subscryption for Cable Channel

Ans.3 = Accounting ENtry as on 01.03.2018

Vally Hills Nursing Homes A/c Dr. 2100

To Sales (Projector) A/c 1680

To Sales (Subscryption for Cable)   A/c 420

(Being Sale of Projector and Subscryption made)

Ans.4= Entry on 31.03.2018 would be made for recognising liability for unexpired subscryption fees received for one year

Sales (Subscryption for Cable)   A/c Dr. 420

To Liability for subscryption of cable A/c 420

(Being Liability recognised )

Ans.5= Entry on receipt of payment

Bank A/c Dr. 2100

To  Vally Hills Nursing Homes A/c 2100

(Being Payment received from debtor)