Logout Open In App
Open In App
Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

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’s 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.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Jansen Corporation shipped \(20,000 of merchandise on consignment to Gooch Company. Jansen paid freight costs of \)2,000. Gooch Company paid \(500 for local advertising, which is reimbursable from Jansen. By year-end, 60% of the merchandise had been sold for \)21,500. Gooch notified Jansen, retained a 10% commission, and remitted the cash due to Jansen. Prepare Jansen’s journal entry when the cash is received.

On what basis should the transaction price be allocated to various performance obligations? Identify the approaches for allocating the transaction price.

When is revenue recognized in the following situations? (a) Revenue from selling products, (b) revenue from services performed, (c) revenue from permitting others to use company assets, and (d) revenue from disposing of assets other than products.

Explain the accounting for contract modifications.

Tablet Tailors sells tablet PCs combined with Internet service, which permits the tablet to connect to the Internet anywhere and set up a Wi-Fi hot spot. It offers two bundles with the following terms.

1. Tablet Bundle A sells a tablet with 3 years of Internet service. The price for the tablet and a 3-year Internet connection service contract is \(500. The standalone selling price of the tablet is \)250 (the cost to Tablet Tailors is \(175). Tablet Tailors sells the Internet access service independently for an upfront payment of \)300. On January 2, 2017, Tablet Tailors signed 100 contracts, receiving a total of \(50,000 in cash.

2. Tablet Bundle B includes the tablet and Internet service plus a service plan for the tablet PC (for any repairs or upgrades to the tablet or the Internet connections) during the 3-year contract period. That product bundle sells for \)600. Tablet Tailors provides the 3-year tablet service plan as a separate product with a standalone selling price of \(150. Tablet Tailors signed 200 contracts for Tablet Bundle B on July 1, 2017, receiving a total of \)120,000 in cash.

Instructions

(b) Prepare any journal entries to record the revenue arrangement for Tablet Bundle B on July 1, 2017, and December 31, 2017.

See all solutions

Recommended explanations on Business Studies Textbooks

Managers

Read Explanation

Strategy

Read Explanation

Organizational Communication

Read Explanation

Actuarial Science in Business

Read Explanation

Nature of Business

Read Explanation

Finance Literacy (Business Studies)

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free