Question

Bellingham Electronics Inc. offers one model of laptop computer for £1000 and a two-year warranty for £250. The retailer, as part of a Boxing Day promotion, offers a limited-time offer for the laptop, including delivery and the two-year warranty for £1,180. The cost of the computer to Bellingham is £700. Any warranty repairs are assumed to be done ratably over time. Bellingham accounts for transactions using the customer consideration model.

In the first twelve months following the sale, Bellingham incurred £980 of costs servicing the computers under warranty.

25.       Bellingham sells ten laptops to Bertram Inc. under the limited-time promotion. Upon delivery of the laptops to Bertram, Bellingham will recognize revenue of (Show Work)

a.   £9,300.

b.   £9,440 (Answer but how?)

c.   £10,000.

d.   £11,800.

Answer 1

Standalone selling price per laptop = £1000

Standalone selling price of two-year warranty = £250

Sum of standalone selling prices = 1000+250 = £1250

Price under the limited-time promotion = £1180

Upon delivery of the laptops to Bertram, Bellingham will recognize revenue related to the sale of laptops only. Warranty revenue will be recognized when the adjusting entries are prepared.

Revenue to be recognized per laptop = 1180*1000/1250= £944

Total revenue to be recognized for 10 laptops = 10*944 = £9440

Option B is correct