Question

Maas LLP developed software that helps farmers to plow their fields in a manner that prevents erosion and maximizes the effectiveness of irrigation. Sunny Dale paid a licensing fee of $22,000 for a copy of the software. Although Sunny Dale can use the software as long as it wants, Maas expects that Sunny Dale will use the software for approximately 5 years. Maas does not anticipate any further interaction with Sunny Dale following transfer of the license. How much revenue should Maas recognize in the first year of the contract?

Multiple Choice

• $0

• $5,500

• $22,000

• $4,400

Answer 1

$22,000

Because Maas LLP will have no more continuing involvement in software. The license transfers a right of using the software to Sunny Dale as long as it wants, and all license revenue can be recognized upon transfer of control of the software to the customer. So Maas LLP should recognize the $22,000 revenue in the first year of the contract.