Better Buy Ltd. sells notebook computers, that come with a 90-day manufacturer’s warranty, as well as extended warranties. On July 1, 2021, Better Buy sold a notebook with a two-year extended warranty contract. The extended warranty coverage started on October 1st, after the 90-day manufacturer’s warranty on the notebook expired. The customer paid $1,500 cash for this special offer. The customer was not obliged to purchase the extended warranty with the notebook, so two performance obligations have been identified. The stand-alone selling price of the computer is $1,400 (cost to Better Buys Ltd. was $700). The stand-alone value of the two-year extended warranty is $240 if purchased and paid for today. Assume the costs to provide the warranty are incurred fairly evenly throughout the two-year period. The customer takes the computer home on July 1, 2021. Better Buys Ltd. has a December 31 year end and prepares financial statements annually.

Required: 

(a) How much of the $1,500 revenue will be recorded in each year (2021 through to 2023)? Show all calculations and label all amounts. (Round to the nearest dollar.) 

(b) Prepare all of the journal entries to record the above transaction for 2021 and 2022.

Answer rating: 100% (QA)

A 2021 141250 5000 2022 2023 3750 B At the time of sale Dr Cash 1500 Cr Revenue Cr Deferred Revenue ... View the full answer