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

Question

Quizplus · Accepted Answer

The computer and maintenance services are distinct, because they are both capable of being distinct and are separately identifiable. Therefore, they qualify as performance obligations. The total bundle price of $1,000 would be allocated to each of them, with $700 (computed as $1,000 × ($840 ÷ (840 + 360))) allocated to the computer, and $300 (computed as $1,000 × ($360 ÷ (840 + 360))) allocated to the maintenance contract. During April, Minarski has delivered the computer and one month of maintenance, so it should recognize revenue of $725 (computed as $700 + ($300 × 1/12 of the duration of the contract)).

Minarski Electronics Sells Computers and Provides Hardware Maintenance Services