Question

Seadrill Engineering licenses software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides after sales consulting services and support to ensure smooth operation of the software over the license period of 5 years. The total transaction price is $420,000. Based on standalone values, the company estimates the consulting services and support have a value of $120,000 and the software license has a value of $300,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction on the date software is sold includes

Answer 1

Dr Cash 420,000

Cr Sales Revenue (software) 300,000

Cr Unearned Service Revenue 120,000

Step-by-step explanation:

software license $300,000

consulting services and support $120,000

total transaction cost $420,000

The recorded transaction should be:

Dr Cash 420,000

Cr Sales Revenue (software) 300,000

Cr Unearned Service Revenue 120,000

Cash account should be debited, since it's an asset. Sales revenue should be credited since it increases equity. Unearned revenue is a type of liability, so it should be credited.