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Prepare tsa journal entry to record the contract on january

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Reference no: EM132471532

Assume that TSA, Inc. entered into a five-year software arrangement on January 1, 1999, whereby the customer is contractually committed to make license payments of $100,000 on the contract date (ILF) and $2,000 at the end of each month during the license period (MLF). TSA's annual borrowing rate is estimated at 12 percent on January 1, 1999. Assume that all conditions for revenue recognition other than those specified have been met in the situations below.

a. In 1999, TSA determined that the monthly license fees for this contract satisfied the ''fixed and determinable'' provision of SOP 97-2. The license fee revenue recognized up-front is the initial payment plus the present value of MLF payments. The difference between the payments to be received from the customer and the amount of license fee revenue recognized is accounted for as interest revenue using the effective interest method.

Question i. Prepare TSA's journal entries to record the contract on January 1, 1999 and receipt of the first installment of $2,000 on January 31, 1999. Revenue Recognition at TSA, Inc.-A Roller Coaster Ride 107 Issues in Accounting Education Volume 33, Number 3, 2018

Question ii. TSA sold the future payment stream from this license arrangement for $65,000 on January 1, 2000 on a nonrecourse basis. Prepare the journal entry to record this transaction assuming that the conditions for a sale are met.

Reference no: EM132471532

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