Swifty Company sells tablet PCs combined with Internet service, which permits the tablet to connect to the Internet anywhere and set up a Wi-Fi hot spot. It offers two bundles with the following terms.
1. Sarasota Bundle A sells a tablet with 3 years of Internet service. The price for the tablet and a 3-year Internet connection service contract is $496. The standalone selling price of the tablet is $238 (the cost to Sarasota Company is $184). Sarasota Company sells the Internet access service independently for an upfront payment of $306. On January 2, 2020, Sarasota Company signed 110 contracts, receiving a total of $54,560 in cash.
2. Sarasota Bundle B includes the tablet and Internet service plus a service plan for the tablet PC (for any repairs or upgrades to the tablet or the Internet connections) during the 3-year contract period. That product bundle sells for $606. Sarasota Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $136. Sarasota Company signed 220 contracts for Sarasota Bundle B on July 1, 2020, receiving a total of $133,320 in cash.
In response to competitive pressure for Internet access for Swifty Bundle A, after 2 years of the 3-year contract, Swifty Company offers a modified contract and extension incentive. The extended contract services are similar to those provided in the first 2 years of the contract. Signing the extension and paying $100 (which equals the standalone selling of the revised Internet service package) extends access for 2 more years of Internet connection. 40 Swifty Bundle A customers sign up for this offer.
Required:
Prepare the journal entry on December 31, 2019, for the 40 extended contracts.
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Swifty Company sells tablet PCs combined with Internet service, which permits the tablet to connect...
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