Question

On July 15, 2018, Ortiz & Co. signed a contract to provide EverFresh Bakery with aningredient-weighing system for a price of $90,000. The system included finely tuned scales thatfit into EverFresh's automated assembly line, Ortiz's proprietary software modified to allow theweighing system to function in EverFresh's automated system, and a one-year contract tocalibrate the equipment and software on an as-needed basis. (Ortiz competes with other vendorswho offer ongoing calibration contracts for Ortiz's systems.) If Ortiz was to provide these goodsor services separately, it would charge $60,000 for the scales, $10,000 for the software, and$30,000 for the calibration contract. Ortiz delivered and installed the equipment and software onAugust 1, 2018, and the calibration service commenced on that date.Assume that the scales, software and calibration service are viewed as one performanceobligation. How much revenue will Ortiz recognize in 2018 for this contract?

Answer 1

$37,500

Step-by-step explanation:

It is assumed that the scales, software and calibration service are shown as a one performance obligation then the revenue of Ortiz will be recognized overtime.

The duration of the contract is 1 year and it is commenced from August 1, hence, five months( from 1st August to 31st December) revenue earned during 2018.

Therefore,

Revenue recognized in 2018 for this contract:

= $90,000 × (5 ÷ 12)

= $37,500