Question:
Easywrite Software Company shipped software to a customer on July 1, 2013. The arrangement with the
customer also requires the company to provide technical support over the next 12 months and to ship an
expected software upgrade on January 1, 2014. The total contract price is $243,000, and Easywrite
estimates that the individual fair values of the components of the arrangement if sold separately would be:
Software $210,000
Technical support 30,000
Upgrade 30,000
Required:
1. Determine the timing of revenue recognition for the $243,000.
2. Assume that the $243,000 contract price was paid on July 1, 2013. Prepare a journal entry to record the
cash receipt. Do not worry about the cost of the items sold.
Answer:
As written, the question implies that there is no VSOE (vendor specific sales price evidence), because the
question refers to the prices as estimated. Under the assumption that there is no VSOE, the correct
answer to this problem is as follows:
Requirement 1
Revenue should be recognized at date of shipment of the upgrade, which occurs on January 1,
2014, because there does not exist vendor-specific evidence upon which to allocate transaction price to
the various software deliverables.
Requirement 2
Easywrite Software Company shipped software to a customer on July 1, 2013. The arrangement with the
customer also requires the company to provide technical support over the next 12 months and to ship an
expected software upgrade on January 1, 2014. The total contract price is $243,000, and Easywrite
estimates that the individual fair values of the components of the arrangement if sold separately would be:
Software $210,000
Technical support 30,000
Upgrade 30,000
Required:
1. Determine the timing of revenue recognition for the $243,000.
2. Assume that the $243,000 contract price was paid on July 1, 2013. Prepare a journal entry to record the
cash receipt. Do not worry about the cost of the items sold.
Answer:
As written, the question implies that there is no VSOE (vendor specific sales price evidence), because the
question refers to the prices as estimated. Under the assumption that there is no VSOE, the correct
answer to this problem is as follows:
Requirement 1
Revenue should be recognized at date of shipment of the upgrade, which occurs on January 1,
2014, because there does not exist vendor-specific evidence upon which to allocate transaction price to
the various software deliverables.
Requirement 2
