Question

Item 6Item 6 On July 15, 2018, Ortiz & Co. signed a contract to provide EverFresh Bakery with an ingredient-weighing system for a price of $90,000. 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 $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 on August 1, 2018, 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 2018 for this contract?

Answer 1

Answer: $74,250

Step-by-step explanation:

Ortiz put the individual goods together and so charged lower. The amount will need to be apportioned based on the amount they will charge had they sold the goods individually.

Total if sold individually;

= 60,000 + 10,000 + 30,000

= $100,000

Scales;

= (60,000/100,000) * 90,000

= $54,000

Software;

= (10,000/100,000) * 90,000

= $9,000

Calibration;

= (30,000/100,000) * 90,000

= $27,000

The Calibration service is for a year and commenced on August 1, and the year ended December 31 so Ortiz would have to account for a year given those 5 months alone.

= 27,000 * 5/12

= $11,250

The total revenue recognized in 2018;

= 54,000 + 9,000 + 11,250

= $74,250