Compute the total amount of revenue to be recognized

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Reference no: EM132828326

Question - At the beginning of May 2019, Alpha Inc. entered into a $900,000 contract with a customer to supply a sophisticated mainframe computer plus three years of regular service. The computer had a selling price of $800,000 and the service was sold separately for $200,000. The customer paid cash for the entire contract on May 2, 2019, when the computer was delivered to the customer.

A) Allocate the sale price of $900,000 to the separate performance obligations, based on the relative fair value approach (stand-alone prices).

B) Give the journal entry(ies) required for Alpha on May 2, 2019. Ignore the cost of goods sold entry.

C) Compute the total amount of revenue to be recognized by Alpha related to the above contract for 2019. Alpha has a December 31 year-end.

D) Assume as above that the computer has a selling price of $800,000 but the stand-alone value of the service contract cannot be determined using objective and reliable information, allocate the $900,000 sales price to the separate performance obligations.

Reference no: EM132828326

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