On November 1, 2019, Gerakos Corporation sold software and a six-month technical support contract to a customer for $80,000. Gerakos sells the same software without technical support for $60,000. It sells technical support for $30,000. Gerakos allocates the transaction price based on relative stand-alone values.

Complete Question is:

On November 1, 2019, Gerakos Corporation sold software and asix-month technical support contract to a customer for $80,000. Gerakos sells the same software without technical support for$60,000. It sells technical support for $30,000. Gerakos allocatesthe transaction price based on relative stand-alone values.

Required:

What amount of revenue does Gerakos recognize in 2019 and in2020?

Answer:

Here the amount of software and technical support is bifurcated based on their individual prices

Software = 80000*60000/90000 = 53,333

Technical support = 80000*30000/90000 = 26667

The pending technical support is for four months 26,667*4/6 = 17778

The revenue to be recognized in 2020 is 17778

The revenue to be recognized in 2019 is 80000-17778 = 62222