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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Crazy Computer Store sells a back-to-school bundle that consists of a laptop computer, printer, and tablet to a customer for $2, 400. Crazy Computer also sells the products on a stand-alone basis for the following amounts: the laptop for $1, 800, the printer for $350, and the tablet for $500. The customer receives a $250 discount for buying the three products as a bundle. Crazy Computer normally sells the laptop and printer as a package for a price of $1, 900. The tablet is normally not discounted.

Required:

  1. 1. How should the transaction price be allocated among the products?
  2. 2. Prepare the journal entry when Crazy sells a back to-school bundle for cash.

1.

To determine

State the manner in which the transaction price must be allocated among the products.

Explanation

Transaction price: Transaction price is the amount of consideration that is estimated by the company to be authorized in exchange, for delivering the promised goods and services to the customer. Transaction price is examined by the seller by analyzing the terms of the contract and the normally conducts of the business.

Calculate the total transaction price:

Laptop (1)$1,590.70
Printer (2)$309.30
Tablet$500
 Total transaction price$2,400

Table (1)

Therefore, the total transaction price is $2,400.

Note: The discount is allocated only to laptop and printer and discounted is not normally allocated to tablet. Thus, the transaction for tablet is $500.

Working notes:

(1)Calculate the transaction price for laptop:

Transactionpriceforlaptop}=[Pricechargedtothecustomer×Stand-alonesellingpriceoflaptopTotalstand-alonesellingprice]=$1,900×$1,000$2,150=$1,590

2.

To determine

Journalize entries to record the sale of bundle for cash.

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