Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides consulting services and support to ensure smooth operation of the software. The total transaction price is $420,000. Based on standalone values, the company estimates the consulting services and support have a value of $120,000 and the software license has a value of $300,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes

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Business

Chief

16 May, 10:20

Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides consulting services and support to ensure smooth operation of the software. The total transaction price is $420,000. Based on standalone values, the company estimates the consulting services and support have a value of $120,000 and the software license has a value of $300,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes

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Brynn Morgan · Answer 1

The multiple choices are:

a credit to sales revenue for $300,000 and a credit to unearned service revenue of $120,000.

a credit to service revenue of $120,000.

a credit to unearned service revenue of $120,000.

a credit to sales revenue of $300,000.

The correct option is A, credit to sales revenue for $300,000 and a credit to unearned service revenue of $120,000.

Explanation:

The revenue relating to the license of $300,000 has been earned since Seadrill Engineering has provided the software to the client but would render the consulting services in the future, hence the revenue relating to consulting would be deferred till the services are provided.

The correct option is A, credit to sales revenue for $300,000 and a credit to unearned service revenue of $120,000.

While the entire cash of $420,000 is debited to cash account