Reference no: EM132706030
Problem - Cullumber Co. enters into a contact to sell Product A and Product B on January 2, 2020, for an upfront cash payment of $190,000. Product A will be delivered in two years (January 2, 2022) and Product B will be delivered in five years (January 2, 2025). Cullumber Co. allocates the $190,000 to Products A and B on a relative stand-alone selling price basis as follows.
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Stand-Alone Selling Prices
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Percent Allocated
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Allocated Amounts
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Product A
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$40,000
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20%
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$38,000
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Product B
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160,000
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80%
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152,000
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$200,000
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$190,000
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Cullumber Co. uses an interest rate of 5%, which is its incremental borrowing rate.
Required -
a) Prepare the journal entries necessary on January 2, 2020, and December 31, 2020.
b) Prepare the journal entry needed on December 31, 2021.
c) Prepare the journal entry needed on January 2, 2022.
d) Using Excel or a financial calculator, calculate the amount of revenue to be recognized for Product B.
e) Prepare the journal entry needed on January 2, 2025.
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