Blackmon Company provides locator services to the city transportation departments. Blackmon’s service involves installing a dedicated hardware transmitter in each city bus. This transmitter provides real-time information to a central logistics center that provides a manager with detailed information as to bus location, speed, current weather, and traffic patterns. The manager can then reroute buses to improve efficiency of operations and increase customer satisfaction. Customers generally sign two separate contracts: one contract governs the sale of the hardware devices, while the second governs the provision of the locator services.
On January 1, 2019, a customer purchased Blackmon’s service by signing a contract for 100 devices for $480,000, the normal selling price. In addition, the customer signed a separate 12-month service contract for $2,000 per month ($20 per month per unit, which is the standard selling price for the service). This amount is billed on a monthly basis, and the customer pays for January service on January 31, 2019. The hardware device can only be used with Blackmon’s services and there are currently no other competitors making devices that work with the Blackmon service. The customer may cancel at any time; however, the amount paid for the device is nonrefundable. The customer is given the right to renew the service contract at the existing rate each December, and the average life of a customer contract is 5 years. The customer takes delivery of the device on January 1, 2019, and begins the locator service on that date.
Required:
- 1. Identify the contract(s) for accounting purposes.
- 2. How many performance obligations exist? When will the performance obligation(s) be satisfied?
- 3. Prepare Blackmon’s
journal entries for January 2019. - 4. Assume that other competitors sell a similar locator service comparable to Blackmon’s. Would this fact change your previous answers?
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Intermediate Accounting: Reporting And Analysis
- Sannah Cookies and Bakery owns and operates seven bakeries shop in several location situated at Kedah. The company have done well and is planning to develop several business information systems including payroll, sales and inventories to increase the company’s performance and efficiency. Miss Sofea has been appointed to manage the new project development for the systems. After the system prioritization analysis has been conducted, Miss Sofea decided and approved by the management to start with the implementation of the payroll system. Ahmed, the system analyst has completed the system design specification and architecture issues. Now, he is ready to address the implementation tasks. He needs to prepare the system testing schedule. Miss Sofea reminded him, “Make sure you include a large number of error in the test data. You know users are bound to make mistakes. We need to design built-in safeguards that will catch the errors and either fix them automatically or alert the user to the…arrow_forwardSannah Cookies and Bakery owns and operates seven bakeries shop in several location situated at Kedah. The company have done well and is planning to develop several business information systems including payroll, sales and inventories to increase the company’s performance and efficiency. Miss Sofea has been appointed to manage the new project development for the systems. After the system prioritization analysis has been conducted, Miss Sofea decided and approved by the management to start with the implementation of the payroll system. Ahmed, the system analyst has completed the system design specification and architecture issues. Now, he is ready to address the implementation tasks. He needs to prepare the system testing schedule. Miss Sofea reminded him, “Make sure you include a large number of error in the test data. You know users are bound to make mistakes. We need to design built-in safeguards that will catch the errors and either fix them automatically or alert the user to the…arrow_forwardPacific Hotels operates a centralized call center for the reservation needs of its hotels. Costs associated with use of the center are charged to the hotel group (luxury, resort, standard, and budget) based on the length of time of calls made (time usage). Idle time of the reservation agents, time spent on calls in which no reservation is made, and the fixed cost of the equipment are allocated based on the number of reservations made in each group. Due to recent increased competition in the hotel industry, the company has decided that it is necessary to better allocate its costs in order to price its services competitively and profitably. During the most recent period for which data are available, the use of the call center for each hotel group was as follows. Division Time Usage (thousands of minutes) Number of Reservations (thousands) Luxury 220 136 Resort 110 204 Standard 440 425 Budget 330 935 During this period, the cost of the…arrow_forward
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