(20 minutes)IBM Corp. is a public company that manufactures and sells computer equipment andprovides support services. IBM's customers can purchase computer equipment or supportservices separately, but the company also offers computer equipment that includessupport as a package.On October 1, 2020, Next Web Ltd. enters into a contract to purchase a computerequipment and support package from IBM. The contract is for $100 million and includesthe computer equipment and 10 years of support services once the computer equipmentis delivered.The computer equipment that was purchased by Next Web would normally sell for $95 Cmillion and 10 years of support services would be valued at $15 million if purchasedseparately. IBM's management expects the computer equipment to be delivered byOctober 1, 2021. The support is expected to be provided evenly for 10 years afterdelivery of the computer equipment.The contract requires Next Web to make a $15-million payment to IBM within 30 dayssigning the contract and then $35 million on October 1, 2021, with the balance to be paannually over 10 years once the computer equipment is delivered on October 1, 2021.Next Web has secured financing to pay for the computer equipment and so IBM'smanagement has no concerns related to collectability.Required1. Assuming that IBM provides the goods and services as and when expected under thcontract and Next Web makes its payments as required, determine when and howmuch revenue IBM would be able to recognize as part of the contract. Use the modefor revenue recognition introduced in class and the textbook in preparing yourresponse. Round percentages to the nearest two decimal places.2. Based on your analysis in part "1" prepare the required journal entries on October 1,2020, October 31, 2020 and October 1, 2021.EditViewInsertFormat ToolsTable| в I U12pt vParagraph v

1) Question Analysis Step 1: Is there a contract? Yes, each party has an agreement to enter a…

IBM Corp. is a public company that manufactures and sells computer equipmen provides support services. IBM's customers can purchase computer equipment services separately, but the company also offers computer equipment that inclu- support as a package. On October 1, 2020, Next Web Ltd. enters into a contract to purchase a compu equipment and support package from IBM. The contract is for $100 million and the computer equipment and 10 years of support services once the computer ed is delivered.

IBM Corp. is a public company that manufactures and sells computer equipmen provides support services. IBM's customers can purchase computer equipment services separately, but the company also offers computer equipment that inclu- support as a package. On October 1, 2020, Next Web Ltd. enters into a contract to purchase a compu equipment and support package from IBM. The contract is for $100 million and the computer equipment and 10 years of support services once the computer ed is delivered.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Company A provides a bundled service offering to Customer B. It charges Customer B $800,000 for initial connection to its network and two ongoing services - access to the network for 1 year and 'on-call troubleshooting' advice for that year. Customer B pays the $800,000 upfront, on 1 July 2020. Company A determines that, if it were to charge a separate fee for each service if sold separately, the fee would be: Connection fee Access fee Troubleshooting Paragraph $400,000 Lato (Recomm... v $500,000 The end of Company A's reporting period is 30 June 2021. Required Prepare the journal entries to record this transaction in accordance with AASB 15 for 1 July 2020 and the year ended 30 June 2021, assuming Company A applies the relative fair value approach. (Show all workings). $400,000 BI U A/ 19px (... ✓ EQ DC X M
An entity promises to sell 120 sacks of rice to a customer for 240,000. The products are transferred to the customer over a six-month period. The entity transfers control of each sack at the shipping point. After the entity has transferred control of 60 products to the customer, the contract is modified to require the delivery of an additional 30 products (a total of 150 identical products) to the customer. The additional 30 products were not included in the initial contract. Not all of the promised goods were delivered at the agreed date because of some uncontrollable reason. What is your opinion on this transaction?
ONE Computer Solution (“ONE") provides IT solutions to corporate clients. ONE offered a price of $2,400 to Client A if he purchases an accounting software from them and choose them to do the installation. Client A agreed and entered into a contract with ONE on 1 January 2022. ONE normally charges clients $2,000 as a standalone selling price for acquiring the accounting software, at a cost of $1,100. The installation service has a standalone selling price of $500. Client A paid ONE $2,000 upon delivery and the remaining balance upon installation of the software. The accounting software was delivered on 1 February 2022. ONE completed installation on 1 March 2022 and client A paid the balance due. Required: (a) Allocate the transaction price between the accounting software and installation service. (b) Prepare the journal entries on the following date (Note: If no entry is required, state “no entry" and write down the reason to support your answer): (i) 1 January 2022. (ii) 1 February…
CleanAir Ltd (CAL) is a company specializing in design and installation of air-purifying systems in residential, office and light commercial properties. It sells air purifiers (with brand name of “FreeAir”) as part of a combined contract which includes a standard two-month warranty term to ensure the quality of FreeAir and maintenance services for a ten-year period. The sale price for the combined contract is $5.4 million. If sold separately, the standalone selling price of the FreeAir would be $4.8 million and the standalone selling price of the ten-year maintenance service contract would be $1.35 million. The standard two-year warranty would not be offered without the FreeAir, so the standalone selling price is estimated to be zero.CAL purchased a patent on 1 January 2017 for $15 million from a world class scientist who has registered the patent on 1 January 1972. The legal right of the patent was set at 50 years from the date the patent was originally registered and the patent was…
Super Clubs Hotels, Inc. has signed a service outsourcing contract with Quality Rooms, Inc. for $3 million, which was received in cash at contract inception. Under the agreement, Quality Rooms is obligated to clean and prepare over 5,000 hotels rooms managed by Super Clubs on a daily basis from September 1, 2020 to August 31, 2021. Required: Prepare any journal entry that Quality would record: (1) at inception of the contract and (2) at the end of 2020 to recognize all revenue associated with this contract that should be recognized in 2020.
On June 1, 2025, Oriole Company sells $185,000 of shelving units to a local retailer, Blue Spruce, which is planning to expand its stores in the area. Under the agreement, Blue Spruce asks Oriole to retain the shelving units at its factory until the new stores are ready for installation. Title passes to Blue Spruce at the time the agreement is signed. The shelving units are delivered to the stores on September 1, 2025, and Blue Spruce pays in full. Prepare the journal entries for this bill-and-hold arrangement (assuming that conditions for recognizing the sale as a bill-and-hold sale have been met) for Oriole on June 1 and September 1, 2025. The cost of the shelving units to Oriole is $89,000. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts. List all debit entries before credit entries. Record journal entries in the order presented in the…
On Jan. 1, 2020, ABC Corporation entered into a franchise agreement with a P570,000 cash payment as initial franchise fee. The fee covers the initial services with the following stand alone prices: Location Identification - P 150,000, Manager Training - P 50,000, Market Study - P 200,000, Employee Training P 200,000. ABC charges a mark-up on cost of 25% when it computes the stand-alone prices of all its services. On Jan 31, 2020, ABC has completed the location identification and market study. How much is the gross profit from the franchise to be reported in the income statement for January 2020 ?
Furtastic manufactures imitation fur garments. On June 1, 2024, Furtastic made a sale to Willett's Department Store under terms that require Willett to pay $220,000 to Furtastic on June 30, 2024. In a separate transaction on June 15, 2024, Furtastic purchased brand advertising services from Willett for $26,000. The fair value of those advertising services is $12,000. Furtastic expects that 3% of all sales will prove uncollectible. Required: 1. Prepare the journal entry to record Furtastic's sale on June 1, 2024. 2. Prepare the journal entry to record Furtastic's purchase of advertising services from Willett on June 15, 2024. Assume all of the advertising services are delivered on June 15, 2024. 3. Prepare the journal entry to record Furtastic's receipt of $220,000 from Willett on June 30, 2024. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. View transaction list Journal entry worksheet
Garrett Corporation began operations in 2021. To maintain its accounting records, Garrett entered into a two-year agreement with Accurite Company. The agreement specifies that Garrett will pay $85,000 to Accurite immediately, and in return, Accurite will make its accounting software accessible via the Internet to Garrett and maintain all infrastructure necessary to run the software and store records. At any time, Garrett Corporation can freely remove its records and run the software on its own hardware or that of another accounting services company. In addition to the cost of the agreement, Garrett incurred $15,000 early in the year devising a plan for its accounting software needs, $25,000 for customizing its own computers for integration with Accurite’s software, and $20,000 after the software was implemented to train its employees. Determine the initial amount that Garrett should capitalize related to the software development costs.
Sirius XM Holdings Incorporated sells a dash-top satellite radio receiver and one-year subscription for a total price of $80. By purchasing this deal, the subscriber is entitled to receive hardware (i.e., the radio), a software update that is automatically downloaded every second month to the radio, and continuous music service for one year from the date the hardware is delivered.Required:Identify the performance obligation(s) in this contract, and indicate whether the revenue should be recognized at a Point in time or Over time for each identified performance obligation. If the Performance Obligation is "No", then mark the Revenue recognized column with "Not affected".
Presented below are two independent revenue arrangements for Pharoah Company. Respond to the requirements related to each revenue arrangement. Click here to view factor table. Pharoah sells 3D printer systems. Recently, Pharoah provided a special promotion of zero-interest financing for 2 years on any new 3D printer system. Assume that Pharoah sells University co-op a 3D system, receiving a $5,100 zero-interest-bearing note on March 1, 2020. The cost of the 3D printer system is $3,060. Pharoah imputes a 8% interest rate on this zero-interest note transaction. Prepare the journal entry to record the sale on March 1, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places, eg. 58,971.) Account Titles and Explanation Debit Credit…