Reference no: EM133087212

Question - Revenue Recognition - Raymond limited manufactures several types of food processing equipment including conveyors, sterilizers, pressure vessels and Machine vision sorting systems. With the sale of equipment, they usually charge around $120,000 for the 1-year service warranty above the regular price.

Currently, Raymond limited is providing the best deal, which includes 1-year of free service warranty and free upgrade of the automated system of the machine after one year, if a customer purchases any model(s) with price over $2,000,000.

On Jan 3rd, 2020, Fruit spread contacted Raymond limited and decided to purchase the automated food processing system. Fruit spread bought the entire system at a price of $2,880,000 and gets the 1-year free service warranty and free upgrade after a year. The regular price of the food processing system is $2,700,000. It costs $2,500,000 for the Raymond limited to manufacture the system. Raymond limited delivers the system on Feb 1st, 2020. The warranty service covers the next 12 months. Raymond upgraded the machine for Fruit spread on April 12th, 2021. The standalone price for the upgradation is $180,000.

Required -

a) Compute the revenue that Raymond limited should recognize on Feb 1st, 2020 and the revenue to defer to the future dates. Provide a journal entry to record the transaction on Feb 1st, 2020.

b) How much revenue does the transaction with Fruit spread generate for Raymond in year 2020 and 2021, respectively?