A company began to sell training contracts with the sale of
their software system in one bundle price whereby the customer pays
a monthly fee for 36 months. The monthly fee is due at the
beginning of each month. During that time, the company provides any
training on the software as required by the customer. It is
expected that training costs incurred will be incurred evenly over
time. Any training costs incurred to date have been charged to the
Purchases of Merchandise account. Assume that the effects of
discounting are not material (i.e. you do not have to discount the
cash flows).
| |
2018
|
2019
|
2020
|
|
Costs during the year
|
$ 3,200,000
|
$ 2,700,000
|
$ 1,700,000
|
|
Estimated costs to complete
|
$ 3,300,000
|
$ 1,000,000
|
$0
|
|
Progress Billings
|
$ 2,700,000
|
$ 2,750,000
|
$ 2,050,000
|
The company sold 2 of these contracts during 2020 as
follows:
Date of contract
Stand-alone selling price of equipment Stand-alone selling price
of training Monthly fee charged to the customer
Contract 1
April 1, 2020
$145,000 $18,000 $4,000
Contract 2
August 1, 2020
$265,000 $27,000 $7,250
The bookkeeper recorded the monthly revenues in the revenue
account.
Required:
Prepare the adjusting journal entry required at December 31,
2020.
