Reference no: EM132572631

Agile Computer Services (ACS) helps its clients purchase computer systems and provides consulting services to assist with connection and networking. The company has a December 31st fiscal year-end.

On December 15, 2019 ACS signs an agreement with Bead D University (BDU). ACS will deliver 120 computers and provide networking and connection services. The total price paid by BDU will be $90,000. The following specific events occur:

1. BDU pays $45,000 on Dec 15, 2019, when the agreement is finalized.
2. The usual retail price ACS would charge for the computers if purchased alone, would be $75,000. ACS would normally charge $25,000 for connection and networking services on a project of this size.
3. The computers were delivered to BDU on January 20, 2020. The connection and installation services were completed on February 15, 2020.
4. On March 1, 2020, BDU paid the remaining $45,000 of the agreed price.

REQUIRED:

Question a) Explain how and when ACS should recognize revenue using the 5-step model of revenue under the contract based approach. You may consider the sale of the computer hardware separately from the provision of services.

Question b) Provide the journal entries required for Dec 15, 2019, and any entries required in 2020. Label the date of each entry, and be sure to clearly identify the name and type of each account used. Your entries should be consistent with the revenue recognition policies you recommended in part a).

Question c) Explain how ACS would record its costs. Each of the 120 computers installed has an original cost to ACS of $350. ACS also incurs $28,000 in labour costs. You do not need to provide journal entries. Explain the treatment of costs in words.