Sanchez Co. enters into a contract to sell Product A and Product B on January 2, 2014, for an upfront cash payment of $150,000. Product A will be delivered in 2 years (January 2, 2016) and Product B will be delivered in 5 years (January 2, 2019). Sanchez Co. allocates the $150,000 to Products A and B on a relative standalone selling price basis as follows.
|
Standalone Selling Prices
|
Percent Allocated
|
Allocated Amounts
|
|
Product A
|
$?40,000
|
25%
|
$?37,500
|
|
Product B
|
?120,000
|
75%
|
?112,500
|
|
$160,000
|
|
$150,000
|
|
Sanchez Co. uses an interest rate of 6%, which is its incremental borrowing rate.
Instructions
|
(a)
|
Prepare the journal entries necessary on January 2, 2014, and December 31, 2014.
|
|
(b)
|
Prepare the journal entries necessary on December 31, 2015.
|
|
(c)
|
Prepare the journal entries necessary on January 2, 2016.
|