On November 1, 2019, Gerakos Corporation sold software and a six-month technical support contract to a customer for $80,000. Gerakos sells the same software without technical support for $60,000. It does not sell technical support separately. Gerakos uses the residual method to allocate the transaction price.

The question requirement relates to the amount of revenue to be recognized in year 2019 and 2020 respectively.

2019 Revenue is $66,667

2020 Revenue $13,333

Explanation:

The total price of $80,000 is split into $60,000 which is standalone  price of the software and the balance relates of $20,000($80,000-$60,000) relates to technical support.

It is important to note that the selling price of software of $60,000 is due for recognition as revenue, while technical support fee of $20000 should be recognized on a progress basis,for each month the technical support has been rendered.

2019 Revenue

Software                                                 $60,000

Technical support($20000*2/6)             $6,667

Total                                                         $66,667

2020 Revenue

($80,000-$66,667)                                  $13,333

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