Question

Zack developed software that helps farmers to plow their fields in a manner that prevents erosion and maximizes the effectiveness of irrigation. Sparky paid a licensing fee of $60,000 for a copy of the software. Although Sparky can use the software as long as it wants, Zack expects that Sparky will use the software for approximately 5 years. Zack will not have any continuing involvement with Sparky following transfer of the license. How much revenue should Zack recognize in the first year of the contract?

Answer 1

Answer:

$60,000 or $12,000

Explanation:

1. Since Zack expects Sparky to use the developed software for a period of five years, we could assume that the revenue for the first year of the contract would be $60,000.

2. Or if we Spread out the average revenue for a period of five years from the licensing fee, 60,000 / 5 (years) would give us 12,000 dollars per year.