B1 5. Alpha Solutions enters into contracts with customers to provide a perpetual software license for$10,000 and one year of post-contract support (PCS) for $1,000, for a total sales price of $11,000. Thelicense and PCS are distinct performance obligations. The contracts include a customer option torenew PCS for an additional year for $800 (a 20% discount). Alpha Solutions concluded that therenewal option is a distinct performance obligation and represents a material right because itoriginally sells for $1,000. Alpha Solutions also determined that both the perpetual license and PCSwere sold at stand-alone selling prices and estimated that the customer has a 70 percent probabilityof renewing at the end of year 1, 40 percent at the end of year 2, and zero percent at the end of year3. After year 3, Alpha estimates there is a zero percent probability of renewing. How much of thetransaction price is allocated to the renewal option for the end of year 1?

The amount of money paid in exchange for receiving products or services from a consumer is known as…

Answered: Alpha Solutions enters into contracts…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 19RE

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