Question

The Cullumber Appliance Store is an experienced home appliance dealer. Cullumber also offers a number of services together with the home appliances that it sells. Assume that Cullumber sells dishwashers on a standalone basis. Cullumber also sells installation services and maintenance services for dishwashers. However, Cullumber does not offer installation or maintenance services to customers who buy dishwashers from other vendors. Pricing for dishwashers is as follows. Dishwasher only $1,273 Dishwasher with Installation service 1,407 Dishwasher with maintenance services 1,541 Dishwasher with installation and maintenance services 1,611 In each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $268. Additionally, the incremental amount charged by Cullumber for installation approximates the amount charged by independent third parties. Dishwashers are sold subject to a general right of return. If a customer purchases a dishwasher with installation and/or maintenance services, in the event Cullumber does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $1,154.

Assume that a customer purchases a dishwasher with both installation and maintenance services for $1,611. Based on its experience, Cullumber believes that it is probable that the installation of the equipment will be performed satisfactorily to the customer. Assume that the maintenance services are priced separately. Indicate the amount of revenue that should be allocated to the dishwasher the installation, and to the maintenance contract. Dishwasher $ Installation Maintenance Total $

Prepare the necessary journal entry for the Cullumber. (Credit account titles are automatically indented when 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

Answer 1

Solution:

1)

Determine the price of all three services

Particulars	Amount
Dishwasher only	$1,273
Installation only ($1,407 - $1,273)	$134
Maintenance service onlu($1,541 - 1,273)	$268
price of all three services	$1,675

The amount of revenue that should be allocated to the dishwasher the installation, and to the maintenance contract

Items	Amount	Working
Diswasher	$1224	(1,273 /$1,675)*1,611
Installation	$129	($134/$1,675)*1,611
Maintenance	$258	($268/$1,675)*1,611
	$1,611

2)

Journal entry:

Date	Account title and explanation	Debit	Credit
	Cash	$1,611
	Sales revenue		$1,224
	Service revenue		$129
	Unearned service revenue		$258
	(To record the revenue)

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