Question

Peachpit Software Developers shipped its accounting package to a customer on September 10, 20X1. In addition to the software, Peachpit's contract requires the company to provide: (1) training to the customer's accounting staff during October of 20X1 and again in January 20x2 when the upgrade is released—75% of the training hours are provided during October, (2) technical product support for one year starting October 1, 20x1, and (3) a major upgrade to the software early in 20x2. The customer paid the total contract price of $80,000 upon receipt of the invoice on September 17, 20X1. Peachpit would charge the following if these individual contract elements were sold separately: Accounting package (software) Training customer's staff Customer support Accounting software upgrade Totals Fair Value $ 65, eee 10, eee 15,000 10,000 $100, eee Required: a. Prepare a journal entry to record receipt of the cash payment b. Determine the amount of revenue to be recognized in 20X1 and prepare the necessary journal entry

Answer 1

Peachpit Software Developers Requirement 1 Requirement 2 Journal Enteries Event Particulars Cash Unearned revenue (To record cash payment) Debit in $ Credit in $ 80000 80000 Accounting package (software) Training customer's staff Customer support Accounting software upgrade Totals Fair Value 65000 10000 15000 10000 100000 Percent of Total Fair Value 65% 10% 15% 10% Contract Price Allocation 52000 8000 12000 8000 80000 61000 61000 Unearned revenue Revenue (To record revenue from bundled sale earned in 20X1) Percentage Rendered in 20X1 Revenue Recognized in 20X1 100% 52000 Accounting package (software) Training customer's staff Customer support (Oct.-Dec.) Software upgrade Totals Contract Price Allocation 52000 8000 12000 8000 75% 25% 0% 6000 3000 0 80000 61000