A company began to sell training contracts with the sale of their software system in one bundle
Question:
A company began to sell training contracts with the sale of their software system in one bundle price whereby the customer pays a monthly fee for 36 months. The monthly fee is due at the beginning of each month. During that time, the company provides any training on the software as required by the customer. It is expected that training costs incurred will be incurred evenly over time. Any training costs incurred to date have been charged to the Purchases of Merchandise account. Assume that the effects of discounting are not material (i.e. you do not have to discount the cash flows).
2018 | 2019 | 2020 | |
Costs during the year | $ 3,200,000 | $ 2,700,000 | $ 1,700,000 |
Estimated costs to complete | $ 3,300,000 | $ 1,000,000 | $0 |
Progress Billings | $ 2,700,000 | $ 2,750,000 | $ 2,050,000 |
The company sold 2 of these contracts during 2020 as follows:
Date of contract
Stand-alone selling price of equipment Stand-alone selling price of training Monthly fee charged to the customer
Contract 1
April 1, 2020
$145,000 $18,000 $4,000
Contract 2
August 1, 2020
$265,000 $27,000 $7,250
The bookkeeper recorded the monthly revenues in the revenue account.
Required:
Prepare the adjusting journal entry required at December 31, 2020.
Expert Answer:
Step 1 Adjusting entries refers to a set of journal entries recorded at the end of the ac... View the full answer
