On July 15, 2022, Otto Inc. signed a contract to provide Brutus Corp. with a sanitizing system for a price of $79,200. The system included finely tuned measuring devices that fit into Brutus Corp.'s automated assembly line, Otto Inc.'s proprietary software modified to allow the sanitizing system to function in Brutus Corp.'s automated system, and a one-year contract to calibrate the equipment and software on an as-needed basis. If Otto Inc. were to provide these goods or services separately, it would charge $51,000 for the measuring devices, $10,000 for the software, and $39,000 for the calibration contract. Otto Inc. delivered and installed the equipment and software on August 1, 2022, and the calibration service commenced on that date. Assume that the measuring devices, software, and calibration service are viewed as one performance obligation. How much revenue will Otto Inc. recognize in 2022 for this contract?

For this contract, Otto Inc. will recognize $79,200 in revenue in 2022, since the company delivered and installed the equipment and software and the calibration service commenced on August 1, 2022.

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Otto Inc. will record $79,200 in revenue for this contract in 2022 because it provided and installed the necessary hardware and software, and the calibration service started on August 1 of that same year.

Since the delivery and installation of the equipment and software as well as the provision of the calibration service are regarded to be one performance requirement, the revenue should be recorded in the amount of the contract price.
Otto Inc. has fulfilled this duty. The amount of revenue recognised for the contract is unaffected by Otto Inc.'s ability to bill separately for these products and services.

Therefore, $79,200 would be the revenue for this contract that would be recognised in 2022.

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IanMckellen IanMckellen · Answer 2 · 2024-04-05T11:12:23-04:00

Final answer:

Otto Inc. would recognize the full contract price of $79,200 as revenue for the year 2022. This is due to the delivery and usage of all goods and services, forming a single performance obligation, within the same year.

Explanation:

Otto Inc. would recognize the full price of the contract as revenue in the year 2022. The reasoning for this lies within the performance obligation as per the accounting standards. Since the measuring devices, software, and calibration services collectively form a single performance obligation and they were all delivered and their services used within the same year, revenue is recognized wholly in 2022. Therefore, the revenue Otto Inc. will recognize in 2022 for this contract is $79,200.

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