Megabyte Software Developers shipped its tax return preparation product to a customer on September 15, 2011. In addition to the software, Megabyte's contract requires the company to provide (1) training to the customer's accounting staff during October of 2011, (2) technical product support for one year starting October 1, 2011 and (3) an upgrade early in 2012 to the software that reflects last minute changes in tax laws affecting tax returns for 2011. The customer paid the total contract price of $85,000 priod to product shipment. Megabyte would charge the following if these individual contract elements were sold seperately:
- Tax Return Preparation Software $70,000
- Training Customer's Staff 10,000
- Customer Support15,000
- Software Upgrade 5,000
- Total Fair Value $100,000
Required:
1. Prepare a journal entry to record receipt of cash payment.
2. Determine the amount of revenue to be recognized in 2011 and prepare thenecessary journal entry.