Prepare the adjusting journal entry required at December

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Question - Holly Inc. 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). The company sold 2 of these contracts during 2021 as follows:

 

Contract A

Contract B

Date of contract

April, 2021

August 1, 2021

Stand-alone selling price of equipment

$155,000

$275,000

Stand-alone selling price of training

$19,000

$28,000

Monthly fee charged to the customer

$5,000

$8,250

Recorded the monthly revenues in the revenue account.

Required - Prepare the adjusting journal entry required at December 31, 2021.

Reference no: EM133053914

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