Reference no: EM132578298

Johnsons Company sells personal computers. For each unit of personal computer sold, the company sells a service contract for P720 each. The contract provides that the personal computer sold will repaired by the company within a period of three years from the date of sale.

Sale of service contracts and repairs are made evenly throughout each year. Based in industry trend, 20% of repairs are done in the first year from the date of sale, 30% in the second year and 50% in the third year.

Information related to the service contracts for years 2014 and 2015 are as follows:

                                                                 2014                   2015

Number of service contracts sold          1,000              1,200

Service contracts expense incurred       P 25,000        P 100,000

REQUIRED:

Question (a) Determine the balance of Unearned Revenue from Service Contracts at December 31, 2015.

Question (b) Determine the profit from service contracts for the years 2014.

Question (c) Determine the profit from service contracts for the years 2015.