Reference no: EM131700347

Question: Waterway Company sells tablet PCs combined with Internet service, which permits the tablet to connect to the Internet anywhere and set up a Wi-Fi hot spot. It offers two bundles with the following terms.

1. Waterway Bundle A sells a tablet with 3 years of Internet service. The price for the tablet and a 3-year Internet connection service contract is $455. The standalone selling price of the tablet is $234 (the cost to Waterway Company is $171). Waterway Company sells the Internet access service independently for an upfront payment of $270. On January 2, 2017, Waterway Company signed 90 contracts, receiving a total of $40,950 in cash.

2. Waterway Bundle B includes the tablet and Internet service plus a service plan for the tablet PC (for any repairs or upgrades to the tablet or the Internet connections) during the 3-year contract period. That product bundle sells for $551. Waterway Company provides the 3-year tablet service plan as a separate product with a standalone selling price of $140. Waterway Company signed 180 contracts for Waterway Bundle B on July 1, 2017, receiving a total of $99,180 in cash.

In response to competitive pressure for Internet access for Waterway Bundle A, after 2 years of the 3-year contract, Waterway Company offers a modified contract and extension incentive. The extended contract services are similar to those provided in the first 2 years of the contract. Signing the extension and paying $86 (which equals the standalone selling of the revised Internet service package) extends access for 2 more years of Internet connection. 50 Waterway Bundle A customers sign up for this offer.

Prepare the journal entry when the contract is signed on January 2, 2019, for the 50 extended contracts. Assume the modification does not result in a separate performance obligation.

Prepare the journal entry on December 31, 2019, for the 50 extended contracts (the first year of the revised 3-year contract).