BoTeck is a full-service technology company. It provides equipment, installation services, and training services. For a recent major group sale, the transaction price had a variable component contingent upon a threshold being reached. Revenue allocated to equipment and installation services was recognized in fiscal year 2015; revenue allocated to training services is being recognized over the next two years through the end of 2017. Now, in February 2016, the contingent outcome previously expected has proven to be false and the transaction price has changed such that additional revenue should be recognized for these performance obligations. What is the proper accounting for this change in transaction price for equipment and installation services?
A) prior period adjustment to increase 2015 revenue for the full amount of change
B) increase 2016 and 2017 revenue by allocating adjustment equally to each year for the proportional amount of change
C) increase 2016 revenue by allocating adjustment to January and February equally to each month for the proportional amount of change
D) increase 2016 revenue by adjusting February for the full amount of change

Question

Quizplus · Accepted Answer

When a change in the transaction price occurs after revenue has already been recognized, and it relates to performance obligations satisfied in a previous period (in this case, equipment and installation services recognized in 2015), the adjustment is recognized in the period in which the transaction price change becomes known. Therefore, the correct accounting treatment is to increase 2016 revenue by adjusting February for the full amount of the change.

BoTeck Is a Full-Service Technology Company