Reference no: EM131119184

Parametric Technology Corporation (PTC) is a software manufacturer. It develops, markets, and supports software that helps manufacturers improve the competitiveness of their products. PTC provides a detailed description of its revenue streams in a recent SEC filing, excerpts of which are provided in Exhibit 8.10.

Required

a. PTC generates revenues from software licenses as detailed in Exhibit 8.10. Discuss the appropriateness of revenue recognition techniques employed by the firm for software licenses in relation to the two general criteria for revenue recognition presented in the chapter.

b. PTC recognizes maintenance service revenue ratably over the term of the maintenance contract unless a specific software upgrade is promised to the customer as part of the maintenance contract. Describe the revenue recognition policy of PTC for maintenance contracts that include a specific upgrade. Justify the logic for the policy.

c. PTC provides educational services to its clients, such as on-site training and assessment, and recognizes revenue when the services are provided. Speculate on the criteria employed by PTC to justify when the services have been provided.

d. PTC states in Exhibit 8.10 that the firm must "exercise judgment and use estimates in connection with the determination of the amounts of software license and services revenues to be recognized in each accounting period." Provide several illustrations of judgments or estimates that PTC must employ for determining the amount of software license and service revenues to report each accounting period.