Calculate the present value of the note receivable

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Reference no: EM133077296

Question - Tablet Tailors sells tablet PCs combined with Internet service (Tablet Bundle A) that permits the tablet to connect to the Internet anywhere (that is, set up a WiFi hot spot). The price for the tablet and a four-year Internet connection service contract is $450. The stand-alone selling price of the tablet is $225 (cost to Tablet Tailors $158). Tablet Tailors sells the Internet access service independently for an upfront payment of $100, plus $65 payments due January 2, 2021, 2022, and 2023. With an imputed interest rate of 8%, the stand-alone value of the service is $268. On January 2, 2020, Tablet Tailors signed 100 contracts, receiving a total of $28,249 in cash (full payment of $450 each in cash, less the present value of the note for the future service plan payments due January 2 each year), delivered the tablets, and started service for 100 tablet packages. Tablet Tailors has a calendar year end and records adjusting entries at the end of the year.

Required -

a. Allocate the transaction price among the performance obligations of the contract. Round percentage allocations to two decimal places and final amounts to the nearest dollar. Assume IFRS is followed. Calculate the present value of the note receivable.

b. Prepare any journal entries on January 2, 2020, and at year end on December 31, 2020.

Reference no: EM133077296

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