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Blackmon Company provides locator services to the city transportation departments. Blackmon’s service involves installing a dedicated hardware transmitter in each city bus. This transmitter provides real-time information to a central logistics center that provides a manager with detailed information as to bus location, speed, current weather, and traffic patterns. The manager can then reroute buses to improve efficiency of operations and increase customer satisfaction. Customers generally sign two separate contracts: one contract governs the sale of the hardware devices, while the second governs the provision of the locator services.
On January 1, 2019, a customer purchased Blackmon’s service by signing a contract for 100 devices for $480,000, the normal selling price. In addition, the customer signed a separate 12-month service contract for $2,000 per month ($20 per month per unit, which is the standard selling price for the service). This amount is billed on a monthly basis, and the customer pays for January service on January 31, 2019. The hardware device can only be used with Blackmon’s services and there are currently no other competitors making devices that work with the Blackmon service. The customer may cancel at any time; however, the amount paid for the device is nonrefundable. The customer is given the right to renew the service contract at the existing rate each December, and the average life of a customer contract is 5 years. The customer takes delivery of the device on January 1, 2019, and begins the locator service on that date.
Required:
- 1. Identify the contract(s) for accounting purposes.
- 2. How many performance obligations exist? When will the performance obligation(s) be satisfied?
- 3. Prepare Blackmon’s
journal entries for January 2019. - 4. Assume that other competitors sell a similar locator service comparable to Blackmon’s. Would this fact change your previous answers?
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Chapter 17 Solutions
Intermediate Accounting: Reporting And Analysis
- Consider the following short case as you respond to the question:SPC Corporation sells computer security software. They maintain their AIS using general ledger software; data files are backed up twice a day. Sales staff can access the customer database, inventory files and general ledger, as well as sales-related documents such as invoices and sales orders. Newly hired sales staff members at SPC receive the company procedures manual which explains the process used to complete the steps in the sales/collection process. To minimize costs, SPC designates up to five sales staff members each month who can do credit checks for all new customers in addition to processing sales. SPC bills its clients monthly and uses the balance forward method of accounting for receivables; all cash receipts from clients are processed using a lockbox procedure. The lockbox firm's fee is 3% of all collections. SPC's accounting department estimates bad debts at the end of each fiscal year; they are normally…arrow_forwardGoodworks Software operates stores within five regions. Regional managers are held accountable for marketing, advertising, and sales decisions, and all costs incurred within their region. In addition, regional managers decide whether new stores will open, where the stores will be located, and whether the stores will lease or purchase the facilities. Store managers, in contrast, are accountable for marketing, advertising, and sales decisions, and costs incurred within their stores. Ideally, on the basis of this information, what type of responsibility center should the software company use to evaluate its regions and stores? (1) Regions; (2) Stores (1) Profit center; (2) Profit center (1) Profit center; (2) Revenue center (1) Investment center; (2) Cost center (1) Investment center; (2) Profit center (1) Profit center; (2) Cost centerarrow_forwardThe following are partial descriptions of internal controls for companies engaged in the manufacturing business: 1. When Mr. Clark orders materials, an electronic copy of the purchase order is sent to the receiving department. During the delivery of materials, Mr. Smith, the receiving clerk, records the receipt of shipment on this purchase order and then sends the purchase order to the accounting department, where it is used to record materials purchased and accounts payable. The materials are transported to the storage area by forklifts. The additional purchased quantities are recorded on storage records. 2. Every day, hundreds of employees clock in using their employee identification cards at Generous Motors Corporation. The data on these time records is used in the preparation of the labor cost distribution records, the payroll journal, and the electronic payments and payroll checks. The treasurer, Angela Lee, compares the payroll journal with the payroll records, signs the checks,…arrow_forward
- Give an example of managerial accounting information that could help a manager make the following decision. The Miami-Dade County board of representatives is deciding whether to build an addition onto one of the county libraries.arrow_forwardWhen Mr. Avila orders materials for his construction business, he sends a duplicate copy of the purchase order to the receiving department. During the delivery of materials, Mr. Nobles, the receiving clerk, records the receipt of shipment of this purchase order. After recording, Mr. Nobles sends the purchase order to the accounting department where it is used to record materials purchased and accounts payable. The materials are trasported to the storage area by forklifts. The additional purchased quantities are recorded on storage records. Required: Identify the weakness/weaknesses in internal control and opposite the identified weakness or weaknesses, enumerate the control procedure/s that you will recommend to avoid or mitigate the risk of loss.arrow_forwardThe following describes the revenue cycle procedures for a hypothetical company.The sales department clerk receives hard-copy customer orders and manually prepares a six-part hardcopy sales order. Copies of the sales order are distributed to various departments as follows: Copies 1, 2, and 3 go to the shipping department, and Copies 4, 5, and 6 are sent to the billing department where they are temporarily filed by the billing clerk.Upon receipt of the sales order copies, the shipping clerk picks the goods from the warehouse shelves and ships them to the customer. The clerk sends Copy 1 of the sales order along with the goods to the customer. Copy 2 is sent to the billing department, and Copy 3 is filed in the shipping department. When the billing clerk receives Copy 2 from the warehouse, she pulls the other copies from the temporary file and completes the documents by adding prices, taxes, and freight charges. Then, using the department PC, the billing clerk records the sale in the…arrow_forward
- The following describes the expenditure cycle for a hypothetical company. The company has a centralized computer system with terminals located in various departments. The terminals are networked to a computer application, and digital accounting records are hosted on a serverin the data processing department. Each day, the computer in the data processing center scans the inventory records looking for items that must be replenished. For each item below itsreorder point, the system creates a digital purchase order and prints two hard copies. A technician in the data center sends the purchase orders to the purchasing department clerk.Upon receipt of the purchase orders, the purchasing clerk reviews and signs them. He sends Copy 1 to the supplier and files Copy 2 in the purchasing department.A few days later, the supplier ships the order and the goods arrive at the receiving department. The receiving clerk reviews the digital purchase order from his terminal, inspects the goods,…arrow_forwardMarketing system provides some useful insights regarding the sales order. Different departments use this information. For instance, the production process uses this information to forecast the expected sale for next month. The production clerk uses this to create an online production schedule. From this schedule, the system automatically prepares weekly online work orders to be used by the production department. The production supervisor assesses the work orders from his terminal and prepares the necessary paper-based move tickets and materials requisitions. Then, the move tickets and two copies of the materials requisitions are distributed to each work centre. Later, work centre employees submit the two copies of the materials requisitions to the warehouse in exchange for materials and sub-assemblies. If additional new materials are needed beyond the standard quantity, the supervisor issues additional materials requisitions. Work centre employees record their work hours on paper-based…arrow_forwardMarketing system provides some useful insights regarding the sales order. Different departments use this information. For instance, the production process uses this information to forecast the expected sale for next month. The production clerk uses this to create an online production schedule. From this schedule, the system automatically prepares weekly online work orders to be used by the production department.The production supervisor assesses the work orders from his terminal and prepares the necessary paper-based move tickets and materials requisitions. Then, the move tickets and two copies of the materials requisitions are distributed to each work centre. Later, work centre employees submit the two copies of the materials requisitions to the warehouse in exchange for materials and sub-assemblies. If additional new materials are needed beyond the standard quantity, the supervisor issues additional materials requisitions.Work centre employees record their work hours on paper-based…arrow_forward
- Marketing system provides some useful insights regarding the sales order. Different departments use this information. For instance, the production process uses this information to forecast the expected sale for next month. The production clerk uses this to create an online production schedule. From this schedule, the system automatically prepares weekly online work orders to be used by the production department. The production supervisor assesses the work orders from his terminal and prepares the necessary paper-based move tickets and materials requisitions. Then, the move tickets and two copies of the materials requisitions are distributed to each work centre. Later, work centre employees submit the two copies of the materials requisitions to the warehouse in exchange for materials and sub-assemblies. If additional new materials are needed beyond the standard quantity, the supervisor issues additional materials requisitions. Work centre employees record their work hours on paper-based…arrow_forwardEmery Communications Company is considering the production and marketing of a communications system that will increase the efficiency of messaging for small businesses or branch offices of large companies. Each unit hooked into the system is assigned a mailbox number, which can be matched to a telephone extension number, providing access to messages 24 hours a day. Up to 20 units can be hooked into the system, allowing the delivery of the same message to as many as 20 people. Personal codes can be used to make messages confidential. Furthermore, messages can be reviewed, recorded, cancelled, replied to, or deleted all during the same message playback. Indicators wired to the telephone blink whenever new messages are present. To produce this product, a $1.75 million investment in new equipment is required. The equipment will last 10 years but will need major maintenance costing $150,000 at the end of its sixth year. The salvage value of the equipment at the end of 10 years is estimated…arrow_forwardYouth Athletic Services (YAS) provides adult supervision for organized youth athletics. It has a president, William Mayes, and five employees. He and one of the other five employees manage all marketing and administrative duties. The remaining four employees work directly on operations. YAS has four service departments: managing, officiating, training, and dispute resolution. A time card is marked and records are kept to monitor the time each employee spends working in each department. When business is slow, there is idle time, which is marked on the time card. (It is necessary to have some idle time because some direct labor-hours must be available to accommodate fluctuating peak demand periods throughout the day and the week.) Some of the July operating data are as follows: Idle Time Managing Officiating Training Dispute Resolution Sales revenue $8,850 $9,800 $4,400 $2,100 Direct labor (in hours) 25 320 110 155 120 Direct overhead…arrow_forward
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