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Prepare journal entries to record revenue arrangement

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Problem - Tablet Tailors sells tablet PCs combined with Internet service (Tablet Bundle A) that permits the tablet to connect to the Internet anywhere (set up a Wi-Fi hot spot). The price for the tablet and a 4-year Internet connection service contract is $410. The standalone selling price of the tablet is $205 (cost to Tablet Tailors $180). Tablet Tailors sells the Internet access service independently for an upfront payment of $10,000, plus $78 payments at the beginning of years 2-4 of the contract. With an imputed interest rate of 8%, the standalone value of the service is $301. On January 2, 2014, Tablet Tailors signed 100 contracts, receiving a total of $20,899 in cash (full payment of $410 each in cash, less the present value of the note for the future service plan payments), delivered tablets, and started service for 100 tablet packages.

(a) Prepare any journal entries to record this revenue arrangement on January 2, 2014.

(b) Prepare any journal entries to record this revenue arrangement on December 31, 2015.

(c) Prepare any journal entries to record this revenue arrangement on December 31, 2016.

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

Reference no: EM132035127

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