Kynocks Systems Management Corp. is a public company that produces and sells computer network systems and support services for those systems. Customers can buy hardware and support separately or in bundles. For example, Kynocks recently sold a network system, training, and five years of service for $2 million. If purchased separately the network would have cost $1.5 million, the training $125,000, and the service $750,000. The training is provided over six months after the installation of the network.

Required:

a. Identify alternative ways of recognizing revenue and indicate how much revenue would be recognized each year under each of the alternatives.

b. Explain which objectives of financial reporting would be served by each alternative.

c. Indicate which alternative could be supported by the revenue recognition criteria.

d. Which method would you recommend Kynocks use for the four-year contract?