Requirement 3 (important for research paper)

Assume that TSA, Inc. entered into a contract with client Anon for $230,000 on January 1, Year 1, to transfer a software license and an additional $15,000 for installation of the software. The license entitles Anon to use the software in its current form over an unlimited period and does not include updates. Two years of customer support come free with the license. In recent stand-alone contracts with other customers for the same software, TSA has charged $200,000 for the software license,

$40,000 for two-year customer support, and $20,000 for installation. The software is usable without customer support from TSA and it can be installed by other vendors. The installation is expected to take 250 hours, of which 150 hours will be required in Year 1 and 100 hours for Year 2. The entire fee of $245,000 is collected on the contract date. Base your answers on the current ASC 606.d

1. Determine the number of distinct performance obligations, and the contract price to be allocated to each, in the following situations:
   1. The installation service does not modify the software.
   2. Installation involves customizing the software to work seamlessly with other software used by the customer. As before, the installation can be performed by other firms as well.

4

When

is

a

performance

obligation

distinct?

Describe

in

your

own

words

and

provide

citation

from

ASC

606.

What

difference

does

it

make

if

a

performance

obligation

is

distinct

or

not?

5

Referring

to

Case

Requirement

3

ai,

what

are

the

distinct

peformance

obligations?

Provide

justification

using

your

own

words

and

provide

citation

from

ASC

606.

6

Referring

to

Case

Requirement

3

aii,

what

are

the

distinct

peformance

obligations?

Provide

justification

using

your

own

words

and

provide

citation

from

ASC

606.

7

Referring

to

Case

Requirement

3

ai,

allocate

the

contract

price

of

$245,000

to

each

performance

obligation.

Explain

in

your

own

words

and

provide

citation

from

ASC

606.

8

Referring

to

Case

Requirement

3

aii,

allocate

the

contract

price

of

$245,000

to

each

performance

obligation.

Explain

in

your

own

words

and

provide

citation

from

ASC

606.

9

For

each

performance

obligation

in

Case

Requirement

3ai,

should

TSA

recognize

revenue

at

a

point

in

time

or

over

time?

Explain

in

your

own

words

and

provide

citation

from

ASC

606.

10

For

each

performance

obligation

in

Case

Requirement

3aii,

should

TSA

recognize

revenue

at

a

point

in

time

or

over

time?

Explain

in

your

own

words

and

provide

citation

from

ASC

606.

11

For

Case

Requirement

3ai,

provide

journal

entries

for

years

1

and

2.

Provide

justification

for

the

amount

of

revenue

recognized

in

each

year.