On July 1, 2018, ABC signed a contract with XYZ to license data management software for a 4-year period. During this period, ABC will also provide consulting services to ensure XYZ is fully maximizing the software’s capability. The total negotiated transaction price for the software license and consulting services is $500,000. XYZ will pay $100,000 when the contract is signed, $100,000 when the license is installed, and the remaining balance will be paid at $100,000 a year on September 1, 2019, 2020 and 2021
When sold individually, the data management software license would be priced at $125,000 and the consulting services would be sold for $375,000. The software was installed on September 1, 2018 and the consulting services will be provided for four years, starting September 1, 2018.
Prepare ABC’s journal entries required as of July 1, 2018,
September 1, 2018 and December 31, 2018 assuming: 1. the software
license and the consulting services are separate performance
obligations.
2. the software license and the consulting services are treated as
a single performance obligation.
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