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Smart Kids sells academic books and online access to worked examples and activities for most school subjects.  During November 2020, Bayview School signed a contracted with Smart Kids and ordered academic books and a one-year online access to worked examples and activities for the 2021 academic year.  The contract price amounted to $100,000.The stand-alone selling prices for similar customers online is $80,000 or books and $40,000 for online access to worked examples and activities for a year.Smart Kids delivered the book on 1 December 2020.  And the online access has been activated for all Bayview school computers on 1 January 2021.Bayview School paid the full contract price on 20 December 2020.Bayview School uses the balance sheet approach for recording deferrals.Ignore GST.Required:How much of the contract price will be allocated to the online access to worked examples and activities for the year?Question 4Answera.$40,000b.$30,000c.$33,333d.$25,000

Question

Smart Kids sells academic books and online access to worked examples and activities for most school subjects.  During November 2020, Bayview School signed a contracted with Smart Kids and ordered academic books and a one-year online access to worked examples and activities for the 2021 academic year.  The contract price amounted to 100,000.Thestand−alonesellingpricesforsimilarcustomersonlineis100,000.The stand-alone selling prices for similar customers online is 80,000 or books and 40,000foronlineaccesstoworkedexamplesandactivitiesforayear.SmartKidsdeliveredthebookon1December2020. AndtheonlineaccesshasbeenactivatedforallBayviewschoolcomputerson1January2021.BayviewSchoolpaidthefullcontractpriceon20December2020.BayviewSchoolusesthebalancesheetapproachforrecordingdeferrals.IgnoreGST.Required:Howmuchofthecontractpricewillbeallocatedtotheonlineaccesstoworkedexamplesandactivitiesfortheyear?Question4Answera.40,000 for online access to worked examples and activities for a year.Smart Kids delivered the book on 1 December 2020.  And the online access has been activated for all Bayview school computers on 1 January 2021.Bayview School paid the full contract price on 20 December 2020.Bayview School uses the balance sheet approach for recording deferrals.Ignore GST.Required:How much of the contract price will be allocated to the online access to worked examples and activities for the year?Question 4Answera.40,000b.30,000c.30,000c.33,333d.$25,000

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Solution

The contract price will be allocated to the online access to worked examples and activities for the year based on the relative stand-alone selling prices of the two components.

The stand-alone selling price for the books is 80,000andfortheonlineaccessis80,000 and for the online access is 40,000. Therefore, the total stand-alone selling price is 80,000+80,000 + 40,000 = $120,000.

The proportion of the total stand-alone selling price that is attributable to the online access is 40,000/40,000 / 120,000 = 1/3.

Therefore, 1/3 of the contract price of 100,000willbeallocatedtotheonlineaccess,whichis100,000 will be allocated to the online access, which is 100,000 / 3 = $33,333.

So, the answer is c. $33,333.

This problem has been solved

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