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How the contract revenue should be allocated

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Reference no: EM133091718

Question - AGI Software Inc. entered into a $250,000 contract with McDonald Company to transfer a software license, perform the related installation service and provide a technical support for three-year period. AGI sells the license to the software, installation service and technical support as a bundle of product for a lump-sum price. The installation service and technical support could be performed by other entities, and there is a ready market for those services. The stand-alone prices for software, installation service and technical support service were $160,000, $20,000 and $30,000 per year (i.e., total of $90,000 for three years) respectively.

The contract was finalized on March 1, 2020. AGI delivered the software license on April 1, 2020 when its title was transferred to McDonald. AGI completed installation on May 15, 2020 at which point the technical support service will begin covering a period of three years.

Upon the installation of software on May 15, McDonald paid for the software, installation service and one-year support service.

AGI Software's fiscal years ends on December 31.

-What are the performance obligations for the purpose of accounting for the sale of software?

-If there is more than one performance obligation, how the contract revenue should be allocated to various components of the contract by AGI? Show the necessary calculations.

-Make the appropriate journal entries on March 1, April 1, May 15 and December 31 in the books of AGI.

Reference no: EM133091718

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