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TopTel Co provides a bundled-service package to J. Willis for $2000 upfront. The service package includes upfront advice, ‘on-call’ advice, and database access for a 1-year period. If each service was sold separately to J. Willis the fees would be:Up-front advice: $400On-call advice : $1800Database access: $600 Required:What is the amount of revenue recognised in relation to the database access is (rounded to the nearest whole dollar)?Group of answer choices$1286$286indeterminable based on the facts provided$429

Question

TopTel Co provides a bundled-service package to J. Willis for 2000upfront.Theservicepackageincludesupfrontadvice,‘on−call’advice,anddatabaseaccessfora1−yearperiod. IfeachservicewassoldseparatelytoJ.Willisthefeeswouldbe:Up−frontadvice:2000 upfront. The service package includes upfront advice, ‘on-call’ advice, and database access for a 1-year period. If each service was sold separately to J. Willis the fees would be:Up-front advice: 400On-call advice : 1800Databaseaccess:1800Database access: 600 Required:What is the amount of revenue recognised in relation to the database access is (rounded to the nearest whole dollar)?Group of answer choices12861286286indeterminable based on the facts provided$429

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Solution

To determine the amount of revenue recognized in relation to the database access, we need to allocate the transaction price to the separate performance obligations based on their standalone selling prices.

Here are the steps:

  1. Calculate the total standalone selling price of all services: 400(upfrontadvice)+400 (upfront advice) + 1800 (on-call advice) + 600(databaseaccess)=600 (database access) = 2800.

  2. Calculate the standalone selling price proportion for the database access: 600/600 / 2800 = 0.2143 (or 21.43%).

  3. Multiply the total transaction price by the standalone selling price proportion for the database access: 2000∗0.2143=2000 * 0.2143 = 428.57.

Rounded to the nearest whole dollar, the amount of revenue recognized in relation to the database access is 429.So,thecorrectansweris429. So, the correct answer is 429.

This problem has been solved

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