Minarski Electronics sells computers and provides hardware maintenance services.
ID: 2539853 • Letter: M
Question
Minarski Electronics sells computers and provides hardware maintenance services. On April 1st, Minarski sold a package deal containing a computer and a one-year unlimited maintenance/repair service for the computer at a bundle price of $1,000. If sold separately, the computer costs $840 and the one-year unlimited maintenance/repair service costs $360. How much revenue does Minarski Electronics recognize for the month ended April 30th, assuming that revenue is accrued monthly?
(A) $725
(B) $870
(C) $1,000
(D) $30
Explanation / Answer
This is a case of provision of bundled services.
In a case of bundled services provided if there is seperate price and they are distinct from each other then they should not be bundled and accounted seperately.
In this case computer can work without the aid of service. So it needs to be accounted in that month itself.
The support services also can be sold as seperate item and so they should be deferred over the contract life i.e., one year. So the per month revenue is 360/12 = 30
So the revenue recognition for the April month is 840+30 = 870.
The answer is Option B