Question

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.		Swifty 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 $534. The standalone selling price of the tablet is $264 (the cost to Swifty Company is $184). Swifty Company sells the Internet access service independently for an upfront payment of $319. On January 2, 2020, Swifty Company signed 90 contracts, receiving a total of $48,060 in cash.
2.		Swifty 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 $626. Swifty Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $139. Swifty Company signed 210 contracts for Swifty Bundle B on July 1, 2020, receiving a total of $131,460 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 $82 (which equals the standalone selling of the revised Internet service package) extends access for 2 more years of Internet connection. 50 Swifty Bundle A customers sign up for this offer.

Prepare the journal entry when the contract is signed on January 2, 2022, for the 50 extended contracts. Assume the modification does not result in a separate performance obligation.

Answer 1

Here, contract modification is separate performance obligation as service performed is distinct and the company is going to receive consideration separately for it.

Date	Particulars	Debit ($)	Credit ($)
Dec 31 2020	Cash (50*82)	4100
	Deferred sales revenue
	(To record sale of 50 extended contracts)
Dec 31 2020	Deferred sales revenue (4100/3)	1367
	Internet service revenue		1367
	(To record revenue now earned)