Question

Martinez 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. Martinez 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 $491. The standalone selling price of the tablet is $246 (the cost to Martinez Company is $166). Martinez Company sells the Internet access service independently for an upfront payment of $291. On January 2, 2020, Martinez Company signed 110 contracts, receiving a total of $54,010 in cash.

2. Martinez 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 $589. Martinez Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $151. Martinez Company signed 210 contracts for Martinez Bundle B on July 1, 2020, receiving a total of $123,690 in cash.

Prepare any journal entries to record the revenue arrangement for Martinez Bundle A on January 2, 2020, and December 31, 2020.

(To record sales)

(To record cost of goods sold)

Prepare any journal entries to record the revenue arrangement for Martinez Bundle B on July 1, 2020, and December 31, 2020.

(To record sales)

(To record cost of goods sold)

Repeat the requirements for part (a), assuming that Martinez Company has no reliable data with which to estimate the standalone selling price for the Internet service.

(To record sales)

(To record cost of goods sold)

Answer 1

Requi. 1

Total Revenue Number of Contracts* Price=(110*$491)	54010
Revenue allocation between two obligations on the basis of standalone selling price
	Tablet	Internet Service	Total
Standalone Selling Price	246	291	537
Revenue allocation to tablet=($246)/$537)*$491	225
Revenue allocation to Internet Service=($291/$537)*$491		266

Date	General,Journal	Debit	Credit
02-Jan-20	Cash	54010
	To Unearned Service Revenue(110*$266)		29260
	To Sales Revenue(110*$225)		24750
	(Being amount of Sales revenue and Unearned service revenue)
	Cost of goods sold(110*$166)	18260
	To Inventory		18260
	(Being amount of cost of goods sold)
31-Dec-20	Unearned Revenue($29260/3)	9753
	To service Revenue		9753
	(Unearned Revenue being earned)

Requi. 2

Total Revenue Number of Contracts* Price=(210*$589)	123690
Revenue allocation between three obligations on the basis of standalone selling price
	Tablet	Internet Service	Tablet Service Plan	Total
Standalone Selling Price	246	291	151	688
Revenue allocation to tablet=($246)/$688)*$589	211
Revenue allocation to Internet Service=($291/$688)*$589		249
Revenue allocation to Tablet Service Plan=($151/$688)*$589			129

Date	General,Journal	Debit	Credit
01-Jul-20	Cash	123690
	To Unearned Service Revenue(Internet)=(210*$249)		52290
	To Unearned Service Revenue(Maintenance)=(210*$129)		27090
	To Sales Revenue(210*$211)		44310
	(Being amount of Sales revenue and Unearned service revenue)
	Cost of goods sold(210*$166)	34860
	To Inventory		34860
	(Being amount of cost of goods sold)
31-Dec-20	Unearned Revenue-Internet=($52290/3)*6/12	8715
	Unearned Revenue-Maintenance=($27090/3)*6/12	4515
	To service Revenue		13230
	(Unearned Revenue being earned)

Requi 3

Total Revenue Number of Contracts* Price=(110*$491)	54010
Revenue allocation between two obligations when no reliable data,distributed equally.
	Tablet	Internet Service	Total
Standalone Selling Price	245.5	245.5	491

Date	General,Journal	Debit	Credit
02-Jan-20	Cash	54010
	To Unearned Service Revenue(110*$245.5)		27005
	To Sales Revenue(110*$245.5)		27005
	(Being amount of Sales revenue and Unearned service revenue)
	Cost of goods sold=(110*166)	18260
	To Inventory		18260
	(Being amount of cost of goods sold)
31-Dec-20	Unearned Revenue=($27005/3)	9002
	To service Revenue		9002
	(Unearned Revenue being earned)