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On July 15, 2021, Ortiz & Co. signed a contract to provide EverFresh Bakery with an...

On July 15, 2021, Ortiz & Co. signed a contract to provide EverFresh Bakery with an ingredient-weighing system for a price of $82,800. The system included finely tuned scales that fit into EverFresh's automated assembly line, Ortiz's proprietary software modified to allow the weighing system to function in EverFresh's automated system, and a one-year contract to calibrate the equipment and software on an as-needed basis. (Ortiz competes with other vendors who offer ongoing calibration contracts for Ortiz's systems.) If Ortiz was to provide these goods or services separately, it would charge $54,000 for the scales, $10,000 for the software, and $36,000 for the calibration contract. Ortiz delivered and installed the equipment and software on August 1, 2021, and the calibration service commenced on that date.

Assume that the scales, software and calibration service are viewed as one performance obligation. How much revenue will Ortiz recognize in 2021 for this contract?

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Expert Solution

It is assumed that Dec 31 would be the year end for Oriz.

The Revenue recognised will be $79,000. revenue will be recognised when the performance obligation is satisfied. For the Scales and Software, these were satisfied on 1st Aug. The callibration service will span over a pear and hence the revenue will also be distributed over a year period.

Particulars If sold individually One Contract Discount for the bundle
Scales $         54,000 $                   44,712 $         9,288
Software $         10,000 $                     8,280 $         1,720
Calibration Service $         36,000 $                   29,808 $         6,192
Total $      100,000 $                   82,800 $      17,200

Journal Entry

Cash 82800
Discount $         13,588
Accrued Discount $           3,612
To Revenue $                   79,000
To Unearned Revenue $                   21,000

Revenue earned will be (54000+10000+360008*5/12)

ekkarill92 answered 2 years ago
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