Question

Sarjit Systems sold software to a customer for $80,000.

As part of the contract, Sarjit promises to provide "free" technical support over the next six months.


Sarjit sells the same software without technical support for $70,000 and a stand-alone six-month technical support contract for $30,000, so these products would sell for $100,000 if sold separately.


Prepare Sarjit’s journal entry to record the sale of the software

Answer 1

If the products are sold seperately they would sell for $100,000:

Software $70,000 = 70%

Technical Support $30,000 = 30%

Sarjit Systems sold the software for $80,000

Software 70% of 80,000 = $56,000

Technical Support 30% of 80,000 = $24,000

We will record technical support as deferred revenue since the customer pays for the support upfront before receiving the service.

The journal entry would be:

Account Title Debit Credit

Cash 80,000

Sales Revenue 56,000

Deferred Revenue 24,000