2. Minarski Electronics sells computers and provides hardware maintenance servic

Question

2. Minarski Electronics sells computers and provides hardware maintenance services. On April 1st, Minarski sold a package deal containing a computer and a one-year unlimited maintenancerepair service for the computer at a bundle price of $1.000. If sold separately, the computer costs $840 and the one-year unlimited maintenance/ service costs $360. How much revenue does Minarski Electronics recognize for the month ended April 30th, assuming that revenue is accrued monthly? A)$1,000 B) $870 C) $725 D) S30 repair

Explanation / Answer

2) Bundled Price = $1,000

Price of computer if sold seperately = $840

Price of maintenance service is sold seperately = $360

Total Price = $840+$360 = $1,200

The bundled price of $1,000 will be allocated between sales revenue and service revenue in the ratio of their seperate prices.

Allocated Price to Computer = $1,000*($840/$1,200) = $700

Allocated Price to Maintenance Service = $1,000*($360/$1,200) = $300

Service Revenue to be recognized for the month of April = $300/12 months = $25

Sales Revenue to be recognized for the month of April = $700

Total revenue to be recognized for the month ended April 30 = $700+$25 = $725

Therefore, Minarski Electronics should recognize revenue of $725 for the month ended April 30. Hence the correct option is C) $725.

1) Rothbart should not recognize any revenue in 2018 (i.e $0). This arrangement does not qualify for revenue recognition over time because the asset the seller is creating has an alternative use to it (as it can be sold to other customer). Therefore, Rothbart must wait until completion of the contract before recognizing revenue.

Hence the correct option is A) $0.

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