Question

On November 1, 20X1, Gerakos Corporation sold software and a six-month technical support contract to a customer for $80,000. Gerakos sells technical support for $30,000. It does not sell the software separately. Gerakos uses the residual method to allocate the transaction price.

Answer 1

The revenue that Gerakos will recognize in 2019 and 2020 based on the residual method is as follow:

                                       2019          2020

Software                     $50,000         $0

Technical support      $10,000       $20,000 ($30,000 x 4/6)

Total revenue           $60,000       $20,000

What is the residual method of revenue recognition?

Under the residual method, the price of the technical support of $30,000 is apportioned between 2019 and 2020.  Since the contract for technical support is for a six-month period, $10,000 ($30,000 x 2/6) will be recognized in 2019 while $20,000 ($30,000 x 4/6) is deferred to 2020.  However, the revenue for the sale of the software is recognized only in 2019.

Question Requirement:

What amount of revenue does Gerakos recognize in 2019 and in 2020?

Thus, in 2019, Gerakos will recognize a revenue of $60,000 and $20,000 in 2020.

Learn more about the residual method of revenue recognition at https://brainly.com/question/22985922