Question

Strong, Inc., bundles two kinds of service activities into a single $6,000 fixed-price contract, yielding two distinct performance obligations, A and B. Each activity has a stand-alone selling price of $3,200. Obligation A is satisfied immediately upon contract signing. Obligation B is satisfied evenly over an eight-month period. After the date of contract signing and the satisfaction of obligation A, two months have passed. Cumulatively, how much revenue should Strong, Inc., recognize by the end of the second month

Answer 1

Answer:

the revenue recognized is $3,750

Explanation:

The computation of the revenue that recognized by the end of the second month is given below:

= $6,000 ÷ $6,400 × $3,200 + $6,000 ÷ $6,400 × $3,200 × 2 months ÷ 8 months

= $3,750

The $6,400 comes from

= $3,200 + $3,200

= $6,400

Hence, the revenue recognized is $3,750