Sullivan should recognize revenue for the two parts of the arrangement as follows:

Question

Quizplus · Accepted Answer

According to the revenue recognition principle, revenue should be recognized when it is earned and when the seller has fulfilled its obligations to the customer. In this case, the software program can be recognized as revenue when the customer pays cash to buy the package, as it has been delivered to the customer at that point. However, the technical support constitutes a separate performance obligation and should be recognized over the support period as the seller still has an obligation to provide those services. Therefore, only the portion of the $500 attributable to the software program should be recognized upfront, while the portion attributable to technical support should be deferred and recognized over time.

Sullivan Should Recognize Revenue for the Two Parts of the Arrangement