Revenue recognition; software
Response to the following problem:
Easywrite Software Company shipped software to a customer on July 1, 2016. The arrangement with the customer also requires the company to provide technical support over the next 12 months and to ship an expected software upgrade on January 1, 2017. The total contract price is $243,000, and Easywrite estimates that the individual fair values of the components of the arrangement if sold separately would be:
Software $210,000
Technical support 30,000
Upgrade 30,000
Required:
1. Determine the timing of revenue recognition for the $243,000.
2. Assume that the $243,000 contract price was paid on July 1, 2016. Prepare a journal entry to record the cash receipt. Disregard the cost of the items sold.