Question

Tablet Tailors sells tablet PCs combined with Internet service (Tablet Bundle A) that permits the tablet to connect to the Internet anywhere (set up a Wi-Fi hot spot). The price for the tablet and a 4-year Internet connection service contract is $520. The standalone selling price of the tablet Is $265 (cost to Tablet Tailors $186). Tablet Tailors sells the Internet access service independently for an upfront payment of $112, plus $68 payments at the beginning of years 2-4 of the contract. With an Imputed Interest rate of 9%, the standalone value of the service is $284. On January 2, 2014, Tablet Tailors signed 121 contracts, receiving a total of $42, 093 in cash (full payment of $520 each in cash, less the present value of the note for the future service plan payments), delivered tablets, and started service for 121 tablet packages. Consider the following Information and respond to the requirements indicated. In response to competitive pressures for the Internet access service for Bundle A, at the end of the second year of the 4-year contract, Tablet Tailors 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 $151 (which equals the fair value of the revised service package) extends access for 2 more years of Internet connection. Assuming 39 Bundle A customers sign up for this offer. Prepare the journal entries when the contract is signed in January 2, 2016, and at December 31, 2016, for those contracts. Assume the modification does not result in a separate performance obligation. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. Round answers to O decimal places, e.g. 5, 275.)