Case 14 3 Coconut Telegraph Essay

888 Words May 15th, 2015 4 Pages
Case 14-3 Coconut Telegraph
Background on Coconut Telegraph
Coconut Telegraph Corporation (Coconut) is a developer and provider of specialized customer billings and management software and systems. On February 1, 2012, Coconut had an arrangement with Buffet Worldwide Inc. (Buffet) to deliver the Volcano System and provide one year of post contract customer support (PCS). The PCS will start March 1, 2012. At the time of the arrangement, February 1, 2012, Buffet paid $12,000 for the Volcano System and the one year of PCS.
On May 1, 2012 Coconut agreed to provide Buffet with training services on the customer management system and one additional year of PCS. This second arrangement was made under a separate contract and Buffet paid $4,500
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The item or items have value on a standalone basis if any vendor sells them separately or the customer could resell the delivered item or items". Both the Volcano System and PCS have standalone relative selling price of $12,000 and $2,000 relatively and they could be purchased separately. Therefore, it is appropriate to account for the Volcano System and the PCS as separate units of accounting and use VSOE to determine the amount of revenue to be recognized.

Relative fair value method

VSOE
% of relative fair value
Allocated discount
Allocated arrangement consideration
System
$12,000
85.71%
$1,714
$10,286*
PCS
$2,000
14.29%
$286
$1,714
Total
$14,000

$2,000
$12,000

February 1, 2012
To record the payment received:
Cash $12,000 Unearned Revenue $12,000
April 30, 2012
To record the delivery of Volcano System:
Unearned Revenue $10,286* Revenue $10,286

3.) . Should the February 1, 2012, agreement and the May 1, 2012, agreement be accounted for separately or as a single arrangement? According to ASC 605-25-25-3, if the vendor and the buyer engage into separate contracts for the same entity at relatively close times, it is presumed to be negotiated as a

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