TPF Ltd enters into a contract with Phony Trump for the purchase of a modem, data connection
Question:
TPF Ltd enters into a contract with Phony Trump for the purchase of a modem, data connection services and content plan. The price charged for the modem and accompanying services is $1,800. If purchased separately, the modern would cost $200, the connection services would be $800 and content plan $1,000. Although the additional services are offered by several competitors, TPF Ltd will provide Phony Trump with a generous rate due to the bundled products and services being supplied. As Phony Trump pays for the plan immediately (1 July 2020), he receives a free gaming console valued at $500. The phone can be used on the networks of any of TPF's competitors. The prepaid service will remain active until the earlier of either the calls/data being used or after 365 days from the date of purchase. The insurance plan will cover phone damage for a period of 6 months.
Required:
1. Identify the number of performance obligations.
2. Determine the amount of the transaction price allocated to each performance obligation and identify when revenue will be recognised (show calculations).
3. Complete the journal entry on 1 July 2020 and 30 June 2021 (assume the business prepares annual financial statements).
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella