Coconut Telegraph Corporation (Coconut) is a developer and provider of specialized customer billings and management software and systems. On February 1, 2012, Coconut entered into an arrangement with Buffett Worldwide Inc. (Buffett) to deliver the Volcano System and provide one year of post contract customer support (PCS) beginning March 1, 2012. Buffett paid $12,000 on February 1, 2012, for the Volcano System and the related PCS.
On May 1, 2012, and in a separate contract, Coconut agreed to provide Buffett with (1) training services on the customer management system and (2) an additional year of PCS. Under the terms of this agreement, Buffett immediately paid consideration of $4,500 for the …show more content…
One year of PCS would then be ($2,000/$14,000) X $2,000 (PCS price), which would then have $1,714 allocated over the year. On April 30th, $10,286 was recognized in revenue for the system and 2/12 X ($1,714) or $286 was recognized for the months that transpired (during which services were delivered) since the arrangement was made.
Therefore, on April 30th, the arrangement for cumulative revenue and deferred revenue for the arrangement should be recorded as follows:
• Cumulative revenue recognized—$10,286+$286= $10,572
• Deferred Revenue balance—$1,714-$286= $1,428
Single vs. Multiple-delivery Arrangement
The team’s initial conclusion is that the two agreements should be accounted for as one multiple-delivery arrangement. This is based on ASC 605-25-3, “separate contracts with the same entity or related parties that are entered into at or near the same time are presumed to have been negotiated as a package and shall, therefore, be evaluated as a single arrangement in considering whether there are one or