On January 1, 2017, BT&T Company Enters into a 2-Year

question 12

Essay

On January 1, 2017, BT&T Company enters into a 2-year contract with a customer for an unlimited talk and 10 GB data wireless plan for $70 per month. The contract includes a smartphone for which the customer pays $200. BT&T also sells the smartphone and monthly service plan separately, charging $700 for the smartphone and $65 for the monthly service for the unlimited talk and 10 GB data wireless plan.
Required:
a. Determine the transaction price for each performance obligation, assuming that
BT&T Company allocates the transaction price based on stand-alone prices.
b. Record the initial journal entry for BT&T Company's sale of a 2-year contract on
January 1, 2017, and the monthly journal entry.
c. On January 1, 2018, the customer realizes that she needs less data in her wireless plan and downgrades to the unlimited talk and 2 GB data plan for the remaining term of the contract 12 months). The unlimited talk and 2 GB data plan is priced at $50 per month, which is the BT&T current stand-alone price for this plan that is available to all customers. Provide BT&T's new monthly revenue recognition journal entry.

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Definitions:

Cutting Department

The Cutting Department is a segment in a manufacturing process where materials are cut to size or shape before being moved to the next phase of production.

Sequential Method

A systematic approach to solving problems or completing tasks one step at a time in a specific order.

Cost Driver

Any factor that causes a change in the cost of an activity or production process.

Sequential Method

A costing method used in process costing that allocates costs to products in a specific sequence, often used for products that go through consecutive processes.