Crews Cable Company provides phone, internet, television, and security services to its customers. Crews offers a promotion where current customers can add phone and security services for an additional $60 per month if they sign a two-year contract. Customers normally keep the services for five years. The installation of phone and security equipment takes two installers four hours, including driving time. Each worker receives total pay of $30 per hour. In addition, the workers install wiring, cameras, and electrical panels costing $550, which will remain in the customer homes at the end of the contract. The installers also leave in the homes cable modems, which cost $150, have a six-year life, and must be returned if the customer cancels the services. Crews incur monthly incremental costs of $15 per subscriber for these services throughout the contract. On October 1, 20X1, two workers complete the installation of phone and security services at the home of Frank Chalmers, and Frank Chalmers signs a two-year contract. Crews has a December 31 accounting year.
Required:
1. What amount of costs will be capitalized as deferred contract costs upon the signing of the contract?
2. How much expense should Crews recognize for all of the above costs in its pre-tax income for the year ended December 31, 20X1?
3. Prepare the journal entries that Crews should make related to the contract during 20X1.
