Complete Electronics Inc.sells a point-of-sale computer with a two-year service contract.Complete collects $3,000 cash for the selling price of the computer and $576 for the two-year service contract.How is revenue recognized?
A)Complete will record Sales Revenue of $3,576 when the computer is delivered to the customer.
B)Complete will record Sales Revenue of $1,788 per year for two years.
C)Complete will record Sales Revenue of $3,000 when the computer is delivered and Service Revenue of $24 per month for 24 months.
D)Complete will record Sales Revenue of $3,000 when the computer is delivered and will record revenue for the service contract as service calls are made.

Question

Quizplus · Accepted Answer

The revenue for the sale of the computer and the service contract should be recognized separately. The sale of the computer should be recognized as revenue when it is delivered, which is $3,000. The service contract revenue should be recognized over the two-year period, which is $24 per month for 24 months, totaling $576. Therefore, the total revenue recognized will be $3,000 + $576 = $3,576.