Question

Enterprise Solutions Inc. licenses its productivity software to Blackmon Company for $100,000, payable at contract inception. Enterprise agrees to provide semiannual software upgrades over the 5-year length of the contract to enable Blackmon to benefit from any technological advancement. Enterprise concludes that the software license is not distinct from the promised upgrades. Required: What journal entries are necessary for Enterprise to account for this transaction

Answer 1

Date Account Titles & Explanation Debit Credit

Jan 1 Cash $100,000

Unearned Revenue $100,000

(To record the contract consideration in advance)

Dec 31 Unearned Revenue $20,000

Sales Revenue $20,000

($100,000/5 years)

(To record the annual expired transaction revenue)