Micro IT manufactures and sells computers. Each of its computers includes Micro IT software that is created by the company and included in the sales price of the computer. As part of the sales agreement, Micro IT provides updates to its software for four years from the date of sale. Micro IT estimates that 10 percent of the sales price is for software updates. Assume one computer was sold in early January 2020 for $1,200 in cash. For this one computer, calculate the following:
a. The amount of revenue that should be recognized in 2020, 2021, 2022, and 2023.
b. The total combined revenue over the four years 2020-2023?
c. How is the revenue that was recognized by Micro IT consistent with the revenue recognition principle?