Question

GoWeb IT Inc. is a public company that manufactures and sells IT systems and also provides IT training and support. GoWeb's customers can purchase IT system hardware or support services separately, but the company also offers hardware and support services as a package. On June 14, 2020, Western Power Ltd., one of GoWeb's customers, purchased an equipment and support package. The contract with Western is for $4.2 million and includes hardware and three years of support services. The hardware that was purchased would normally sell for $3.2 million, and support services would be valued at $1.3 million if purchased separately. The hardware cost GoWeb $2.6 million and was delivered on June 30, 2020. GoWeb's management expects that about half of the support services will be provided in July 2020 as the new hardware is installed. The balance of the support is expected to be provided evenly over the remainder of the contract. The contract also calls for Western to make a $1.2-million payment to GoWeb within 30 days of signing the contract and then $1 million on January 1, 2021, 2022, and 2023. Western is a successful company and GoWeb's management has no concerns about collectability.

1. Assuming that GoWeb provides the goods and services as expected under the contract and Western makes its payments as required, determine when and how much revenue GoWeb would be able to recognize in each year of the contract. Round percentages to the nearest two decimal places.

2. Prepare the required summary journal entries and any required adjusting journal entries for the contract based on your analysis in part “a.” GoWeb has a calendar year end and records adjusting journal entries monthly.