Cheyenne Company sells tablet PCs combined with Internet service, which permits

Question

Cheyenne 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. Cheyenne 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 $534. The standalone selling price of the tablet is $264 (the cost to Cheyenne Company is $184). Cheyenne Company sells the Internet access service independently for an upfront payment of $319. On January 2, 2017, Cheyenne Company signed 90 contracts, receiving a total of $48,060 in cash.

2. Cheyenne 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 $626. Cheyenne Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $139. Cheyenne Company signed 210 contracts for Cheyenne Bundle B on July 1, 2017, receiving a total of $131,460 in cash.

(a) Prepare any journal entries to record the revenue arrangement for Cheyenne Bundle A on January 2, 2017, and December 31, 2017. (Credit account titles are automatically indented when the 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. Round answers to 0 decimal places, e.g. 5,125.)

Explanation / Answer

Journal Entry for Revenue Regognition for Bundle A Service S. No. Date Account Title & Explanation Debit Credit 1 02/01/2017 Cash $48,060 unearned Revenue $48,060 ( Being Cash received for Bundled Service for 90 Contract, @ $534) 2 Uneraned Revenue $21,780 Revenue from Tablet sale $21,780 Being revnue on sale of Tablel recognised immediately & Internet service revenue recognised over the period, (90 Contract * $242) 31/12/2017 Uneraned Revenue $26,280 Revenue from internet Service $26,280 ( Being Internet service 1 year revenue recognized, ( 90 Contract * $ 292) Working Note for allocation for Bundle A Service Contract Amount for Bundle A $534 Tablet Internet Total Standalone Price $264 $319 $583 Allocation of Bundle price $242 $292 $534 ( $534*$264/$583) ( $534*$319/$583)

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