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Chapter 18: Q3E. (page 1032)

Hillside Company enters into a contract with Sanchez Inc. to provide a software license and 3 years of customer support. The customer-support services require specialized knowledge that only Hillside Company鈥檚 employees can perform. How many performance obligations are in the contract?

Short Answer

Expert verified

The performance obligations are- providing licensed software with customer support as a package and licensed software as well as customer service.

Step by step solution

01

Meaning of Performance Obligations

The word performance obligationsrefer to the seller's responsibility to execute the terms of the contract and sell or offer services to customers as promised. It could be implied, expressed verbally, or based on conventional business practice.

02

Performance obligations in this contract

This agreement has two performance obligations as they are providing both Licensed Software and Customer Support and assembling a bundle of Licensed Software and Customer Support. This has assigned both parties to perform certain related duties.

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Most popular questions from this chapter

What is a performance obligation? Under what conditions does a performance obligation exist?

On October 10, 2017, Executor Co. entered into a contract with Belisle Inc. to transfer Executor鈥檚 specialty products (sales value of \(10,000, cost of \)6,500) on December 15, 2017. Belisle agrees to make a payment of $5,000 upon delivery and signs a promissory note to pay the remaining balance on January 15, 2018. What entries does Executor make in 2017 on this contract? Ignore time value of money considerations

Stengel Co. enters into a 3-year contract to perform maintenance service for Laplante Inc. Laplante promises to pay \(100,000 at the beginning of each year (the standalone selling price of the service at contract inception is \)100,000 per year). At the end of the second year, the contract is modified, and the fee for the third year of service, which reflects a reduced menu of maintenance services to be performed at Laplante locations, is reduced to \(80,000 (the standalone selling price of the services at the beginning of the third year is \)80,000 per year). Briefly describe the accounting for this contract modification.

How should a franchisor account for continuing franchise fees and routine sales of equipment and supplies to franchisees?

Jupiter Company sells goods to Danone Inc. by accepting a note receivable on January 2, 2017. The goods have a sales price of \(610,000 (cost of \)500,000). The terms are net 30. If Danone pays within 5 days, however, it receives a cash discount of $10,000. Past history indicates that the cash discount will be taken. On January 28, 2017, Danone makes payment to Jupiter for the full sales price.

Instructions

(a) Prepare the journal entry(ies) to record the sale and related cost of goods sold for Jupiter Company on January 2, 2017, and the payment on January 28, 2017. Assume that Jupiter Company records the January 2, 2017, transaction using the net method.

(b) Prepare the journal entry(ies) to record the sale and related cost of goods sold for Jupiter Company on January 2, 2017, and the payment on January 28, 2017. Assume that Jupiter Company records the January 2, 2017, transaction using the gross method.
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