Question

On May 1, 2021, Varga Tech Services signed a $126,000 consulting contract with Shaffer Holdings. The contract requires Varga to provide computer technology support services whenever requested over the period from May 1, 2021, to April 30, 2022, with Shaffer paying the entire $126,000 on May 1, 2021. How much revenue should Varga recognize in 2021?

Answer 1

Answer:

The amount of revenue recognizable in 2021 is $84000 as shown below

Explanation:

Since the revenue spans over two years,8 months in the year 2021 and the remaining 4 months relate to 2022, the revenue should be recognized on proportional basis.

The revenue in 2021 =total revenue*months in the year/12 months

                                   =$126000*8/12

                                    =$84000

This amount is recorded on monthly basis by crediting revenue with one  month sales revenue value  $10500($126,000/12) and debiting to deferred revenue.

At the end of the year four months worth of revenue amount would be left in deferred revenue account as revenue for 8 months would have been recognized.