M6-17 Explaining Revenue Recognition and Bundled Sales A.J. Smith Electronics is a retail consumer electronics company that also sells extended warranty contracts for many of the products that it carries. The extended warranty provides coverage for three years beyond the expiration of the manufacturer’s warranty. In 2016, A.J. Smith sold extended warranties amounting to $1,700,000. The warranty coverage for all of these begins in 2017 and runs through 2019. The total expected cost of providing warranty services on these contracts is $500,000. a. How should A.J. Smith recognize revenue on the extended warranty contracts? b. Estimate the revenue, expense, and gross profit reported from these contracts in the year(s) that the revenue is recognized. c. In 2017, as a special promotion, A.J. Smith sold a digital camera (retail price $300), a digital photo printer (retail price $125), and an extended warranty contract for each (total retail price $75) as a package for a special price of $399. The extended warranty covers the period from 2018 through 2020. The company sold 200 of these camera–printer packages. Compute the revenue that A.J. Smith should recognize in each year from 2017 through 2020
M6-17 Explaining Revenue Recognition and Bundled Sales
A.J. Smith Electronics is a retail consumer electronics company that also sells extended warranty contracts for many of the products that it carries.
The extended warranty provides coverage for three years beyond the expiration of the manufacturer’s warranty.
In 2016, A.J. Smith sold extended warranties amounting to $1,700,000. The warranty coverage for all of these begins in 2017 and runs through 2019.
The total expected cost of providing warranty services on these contracts is $500,000.
a. How should A.J. Smith recognize revenue on the extended warranty contracts?
b. Estimate the revenue, expense, and gross profit reported from these contracts in the year(s) that the revenue is recognized.
c. In 2017, as a special promotion, A.J. Smith sold a digital camera (retail price $300), a digital photo printer (retail price $125), and an extended warranty contract for each (total retail price $75) as a package for a special price of $399.
The extended warranty covers the period from 2018 through 2020. The company sold 200 of these camera–printer packages. Compute the revenue that A.J. Smith should recognize in each year from 2017 through 2020
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