Sarjit Systems sold software to a customer for $166,000. As part of the contract, Sarjit promises to provide "free" technical support over the next six months. Sarjit sells the same software without technical support for $144,000 and a stand-alone six-month technical support contract for $36,000, so these products would sell for $180,000 if sold separately. Prepare Sarjit’s journal entry to record the sale of the software.

Dr Cash $166,000

Cr Deferred revenue $33,200

Cr Sales revenue $132,800

Explanation:

Preparation of Sarjit’s journal entry to record the sale of the software.

Dr Cash $166,000

Cr Deferred revenue $33,200

($166,000 × 20%)

Cr Sales revenue $132,800

($166,000 × 80%

Workings:

First step is to calculate the total fair values percentage

Total fair values percentage= ($144,000 ÷ [$36,000 + $144,000])

Total fair values percentage=80%

Second step is to calculate the technical support percentage

Technical support percentage=($36,000 ÷ [$36,000 + $144,000]).

Technical support percentage=20%

Now let calculate the amount recognized and the remaining amount recognized

Recognize amount= ($166,000 × 80%)

Recognize amount=$132,800

Remaining amount recognized= ($166,000 × 20%)

Remaining amount recognized=$33,200

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