Computers Inc. sells personal computers as well as home Internet service. On July 1, 2019, Computers sold a computer with a two-year Internet connection service contract. The customer paid $1,950 cash for this special offer. Each component could have been purchased separately by the customer so two performance obligations have been identified.

The stand-alone selling price of the computer is $900 (cost to Computers Inc. $490). The stand-alone value of the two-year Internet service is $1,200 if purchased and paid for today.

Assume the costs to provide the Internet are incurred fairly evenly throughout the two-year period. The customer takes the computer home on July 1, 2019.

Computers Inc. has a December 31 year-end and prepares financial statements annually.

Required:

(a) How much of the $1950 revenue will be recorded in each year (2019 through to 2021)? 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 2019 and 2020

Answer rating: 100% (QA)

Revenue recognition occurs when an entity satisfies a performance obligation by transferring either goods or a service to a customer Revenue should be ... View the full answer