Trueblood Case 14-3: Coconut Telegraph
Facts: * Coconut Telegraph Corporation (Coconut) is a developer and provider of specialized customer billings and management software and systems * On February 1, 2012, Coconut entered into an arrangement with Buffett Worldwide Inc. (Buffett) to deliver the Volcano System and provide one year of post-contract customer support (PCS) beginning March 1, 2012. * Buffett paid $12,000 on February 1, 2012, for the Volcano System and the related PCS.
On May 1, 2012, and in a separate contract, Coconut agreed to provide Buffett with (1) training services on the customer management system and (2) an additional year of PCS. * Under the terms of this agreement,…show more content… In this case, vendor-specific objective evidence of fair value is limited to the price charged when the same element is sold separately. Of the $12,000 Feb 1 agreement, $10,286 will be allocated to the Volcano System and $1,714 will be allocated to the PCS. The portion of the fee allocated to post-contract customer support shall be recognized as revenue ratably over the term of the post-contract customer support arrangement, because the post-contract customer support services are assumed to be provided ratably (PCS 985-605-25-67).
As of April 30 - Recognized Revenue – Volcano System $10,286, PCS $286 (2 mths) Deferred Revenue – PCS $1,428 3. Should the February 1, 2012, agreement and the May 1, 2012, agreement be accounted for separately or as a single arrangement?
Arrangements for products or services containing software that is incidental to the products or services as a whole will not be included indicating the 2 arrangements will be separate (ASC 985-605-15-4a). 4. On the basis of the response to Question 3, how should Coconut account for the execution of the May 1, 2012, agreement? Provide the deferred revenue balance and cumulative revenue recognized related to the Buffett arrangement upon execution of the May 1, 2012, agreement.
Of the $4,500 paid for the May 1