Question

After the launch of uPhone 8, Pear Inc. decides to provide some incentives to promote the sale of uPhone 7 inventories. (Pear Inc.’s gross margin on uPhones is 40%.)

1. The first deal is a bundle sale: The customer pays $900, which is the market price for a stand-alone uPhone 7, and gets free uTunes download for three months. The market price for one-month uTunes download is $75.

Pear sold 1,000 uPhone 7 bundles on December 1st, 2019.

Required: Determine the amount of revenue that Pear Inc. should record on December 1st and December 31st, 2019 respectively, from this bundle sale. Show steps for partial marks.

2. The second deal is through flexible payment arrangement: The customer can get a uPhone 7 by making 45 monthly payment of $20, with the first payment due 30 days after purchase.

Pear sold 800 uPhone 7 with installment payment on November 1st, and 1,500 on December 1st, 2019.

Required:

a) Provide journal entries at the time of sale in November and December 2019.

b) Provide journal entries when payments are received at the end of November and December 2019.

Answer 1