Question

3. Chase technology is a full-service technology company. Prices for their equipment, installation services, and training are $90,000, $22,500 and $37,500, respectively. Training takes places over a period of three months. Customers can purchase any product or service separately or as a bundled package. Customer Corporation purchased computer equipment, installation, and training for a total cost of $144,000. Chase delivered and installed the equipment on November 1, Year 1. A. Compute the amount of revenue that will recognized on November 1. B. Compute the amount of unearned revenue that will recognized on November 1.

Answer 1

1. First we need to find the percentage of each item in the bundled product and use this % to find the actual cost of each in total cost of the product
   % of Equipment =90000/(90000+22500+37500)=60%
   % of installation=22500/(90000+22500+37500)=15%
   % of training=37500/(90000+22500+37500)=25%
   
   Now total cost is $144,000
   Amount of equipment=60%*144000=$86,400
   Amount of installation=15%*144000=$21,600
   Amount of training=25%*144000=$36,000
   
   We consider only one month of training for Nov1 and rest amount is deferred
   Amount of revenue recognized on Nov 1=86400+21600+(36000/3)=$120,000
2. Unearned revenue=144000-120000=$24,000