Question

On July 15, 2021, Ortiz & Co. signed a contract to provide EverFresh Bakery with an ingredient-weighing system for a price of $79,200. 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 $51,000 for the scales, $10,000 for the software, and $39,000 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? Multiple Choice $0 $48,312 $33,000 $79,200

Answer 1

Answer:

$77,250

Explanation:

Given

Scales charges = $51,000

Software charges = $10,000

Calibration contract charges = $39,000

There are 5 months from August 1, 2021 till the end of the year.

And the calibration services would be done on August 1, 2021.

Expected Calibration charges = $39,000 * 5/12

Expected Calibration charges = $16,250

Total revenue to be recognised is then calculated as;

Scales Charges + Software Charges + Expected Calibration Charges.

Total Revenue = $51,000 + $10,000 + $16,250

Total Revenue = $77,250

Hence the total recognise revenue is $77,250