Problem 18-1 Marin Company sells tablet PCs combined with Internet service, whic
ID: 2509675 • Letter: P
Question
Problem 18-1
Marin 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.
Date
Account Titles and Explanation
Debit
Credit
(To record sales)
(To record cost of goods sold)
Date
Account Titles and Explanation
Debit
Credit
(To record sales)
(To record cost of goods sold)
Dec. 31, 2017
Date
Account Titles and Explanation
Debit
Credit
(To record sales)
(To record cost of goods sold)
1. Marin 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 $506. The standalone selling price of the tablet is $269 (the cost to Marin Company is $158). Marin Company sells the Internet access service independently for an upfront payment of $285. On January 2, 2017, Marin Company signed 100 contracts, receiving a total of $50,600 in cash. 2. Marin 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 $598. Marin Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $157. Marin Company signed 220 contracts for Marin Bundle B on July 1, 2017, receiving a total of $131,560 in cash.Prepare any journal entries to record the revenue arrangement for Marin 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.)Date
Account Titles and Explanation
Debit
Credit
Jan. 2, 2017Jul. 1, 2017Dec. 31, 2017
(To record sales)
(To record cost of goods sold)
Jan. 2, 2017Jul. 1, 2017Dec. 31, 2017
Prepare any journal entries to record the revenue arrangement for Marin Bundle B on July 1, 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.)
Date
Account Titles and Explanation
Debit
Credit
Jan. 2, 2017Jul. 1, 2017Dec. 31, 2017
(To record sales)
(To record cost of goods sold)
Dec. 31, 2017
Repeat the requirements for part (a), assuming that Marin Company has no reliable data with which to estimate the standalone selling price for the Internet service. (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.)
Date
Account Titles and Explanation
Debit
Credit
Jan. 2, 2017Jul. 1, 2017Dec. 31, 2017
(To record sales)
(To record cost of goods sold)
Jan. 2, 2017Jul. 1, 2017Dec. 31, 2017
Explanation / Answer
a) The bundled price of $506 is need to be allocated to tablet and internet service in the ratio of their standalone selling price.
Allocation of bundle price to Tablet = $506*$269/($269+$285)
= $506*$269/$554 = $246
Allocation of bundle price to Internet Service = $506*$285/$554 = $260
Journal Entries (Amounts in $)
b) The bundled price of $598 is need to be allocated to tablet, internet service and revenue service in the ratio of their standalone selling price.
Allocation of bundle price to Tablet = $598*$269/($269+$285+$157)
= $598*$269/$711 = $226
Allocation of bundle price to Internet Service = $598*$285/$711 = $240
Allocation of bundle price to Repair Service = $598*$157/$711 = $132
Journal Entries (Amounts in $)
c) If in requirement a), there is no estimate for standalone selling price of Internet Service
Price for tablet = $269
Assumed Price for Internet Service = $506 - $269 = $237
Journal Entries (Amounts in $)
Date Account Titles and Explanations Debit Credit Jan 2, 2017 Cash (100 Contracts*$506) 50,600 Sales revenue (100 Contracts*$246) 24,600 Unearned Internet Service revenue (100*$260) 26,000 (To record sales) Cost of Goods Sold (100*$158) 15,800 Inventory 15,800 (To record cost of goods sold) Dec. 31, 2017 Unearned Internet Service Revenue ($26,000/3 yrs) 8,667 Internet Service Revenue 8,667