On December 31, 2010, Meier Company sells a television to a customer. The customer also buys a 3-year warranty from Meier. Meier normally sells the television and warranty separately for €2,000 and €400, respectively. However, as part of a year-end promotion, it sells the television and warranty separately at the reduced price of €2,300. The customer pays in full at the point of sale and takes immediate delivery of the television. When a warranty claim arises, Meier processes it and repairs or replaces the television. Its experience with that type of television suggests a 5% likelihood that a claim will be filed during the first year of warranty coverage, and a 5–10% likelihood in the second and third years, respectively.

Instructions

(a) Determine how the transaction price should be allocated between the sale of the television and the warranty.

(b) Prepare the journal entry to record this transaction on December 31, 2010.

(c) Indicate the amount of revenue that should be recorded in 2011 and 2012.