Sanchez co enters into a contract to sell product a and, Ask an Expert

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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.

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