Please answer the following questions, using the data in Exhibit 1 of this case and financial data in the excel worksheet, about Salesforce.com (CRM). The company is a provider of enterprise software, specifically for customer relation management. The company has been highly successful at using the “cloud” platform to deliver software solutions for businesses to manage customers. According to the company,
“Cloud computing changes the way enterprise business applications are developed and deployed. Application developers no longer need to create and manage their own infrastructure of servers, storage, network devices, operating system software and development tools in order to create a business application. Instead, the entire infrastructure is managed by third parties who specialize in infrastructure management, and developers simply use an Internet browser to access the development environment. Application users can gain access to a variety of business applications via an Internet browser or mobile device on an as-needed basis, and are able to take advantage of a robust, secure, scalable and highly available application, with few or no implementation services required and without the cost and complexity of managing the hardware or software infrastructure in-house.”
The company derives its revenues mainly from subscription fees and support fees from customers accessing its enterprise cloud computing services. Subscription revenue is for the use of software and support revenues is for support in using the software. Subscription and support revenues accounted for approximately 94 percent of total revenues during fiscal 2012.
1. Suppose a customer subscribes to the software for 3 years (36 months) on February 1, 2011 and is billed at the rate of $120,000 per year immediately. The customer agrees to pay the subscription for 36 months within 30 days of billing as per standard agreements.
a. What the revenue recognized by the company for the fiscal year ending January 31, 2012 for this contract? The revenue will be recognized at $120,000 per year.
b. What is the amount of cash collected by the company from the customer for the fiscal year ending January 31, 2012 for this contract? Under the terms $$360,000 is the cash collected
c. What is the amount of deferred revenue recognized at the end of the fiscal year ending January 31, 2012 for this contract? The revenue collected in advance $240,000
d. What is the amount of current and non-current deferred revenues recognized at the end of the fiscal year ending January 31, 2012 for this contract? $120,000 each
2. Suppose the customer subscribes to support for a period of 24 months. Support costs $2,000 a month if bought on a month-to-month basis. The cost of Support would have been $1,200 per month had the customer bought it for the entire subscription period at the time of contract initiation.
a. What is the support revenue recognized by the company for the fiscal year ending January 31, 2012? $24,000
b. What is the deferred support revenue recognized by the company for the fiscal year ending January 31, 2012? $24,000 for next year
c. If the customer had bought Support for the entire subscription period at contract initiation how would your responses for 2(a) and 2(b) change? $14,400 for current year and $28,800 deferred
3. Suppose CRM pays a sales commission of 5% of subscription value of the customer’s contract.
a. What is the amount of commission paid in cash during the fiscal year January 31, 2012 for this specific customer contract? $18,000
b. What is the amount of commission expense recognized over the fiscal year ending January 31, 2012 for this specific customer contract? $6,000
c. What is the deferred commission expense with respect to this customer contract for the fiscal year ending January 31, 2012? $12,000
4. Please use data from the worksheet that has the Balance Sheet and Income Statement for CRM for the year