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

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Answer:

January 2, 2020, 100 contracts are sold:

Dr Cash 48,500

    Cr Sales revenue - tablets 23,164

    Cr Unearned service revenue 25,336

Dr Cost of goods sold 16,500

    Cr Merchandise inventory 16,500

December 31, 2020,

Dr Unearned service revenue 8,445

    Cr Service revenue 8,445

Explanation:

the price for the bundle = $485

  • tablet = $256 ⇒ [$256 / ($256 + $280)] x $485 = $231.64
  • service = $280 ⇒ $485 - $231.64 = $253.36

You first need to prorate the price of the tablet and the cost of the internet service. Since the service is prepaid, you cannot recognize revenue, instead a liability account is created (unearned service revenue). As time passes, the unearned revenue will turn into accrued service revenue.

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