On April 1st, Minarski Electronics sold a package deal that included both a computer and a one-year unlimited maintenance repair service. To understand the revenue recognition for this transaction, we need to consider how revenue is typically recognized under accounting standards.
According to the revenue recognition principle, revenue should be recognized when it is earned and realizable, which often means when the goods or services are delivered to the customer. In this case, the sale consists of two distinct components: the computer and the maintenance service.
For the computer portion of the sale, revenue can be recognized immediately upon delivery, as it represents a separate performance obligation. On the other hand, the revenue from the maintenance service will need to be recognized over the period that the service is provided (i.e., over the year) since it is not delivered at once and extends over time.
If the total package price is, say, $1,200, and the fair value of the computer is $1,000 while the maintenance service is valued at $300, Minarski would recognize $1,000 in revenue from the sale of the computer on April 1st. The remaining $200 would be recognized as revenue over the duration of the maintenance service, typically recognized monthly.
This method ensures that revenue is matched with the period in which the services are rendered, in accordance with the accrual basis of accounting.