Practice

Revenue recognition: the five-step model and contract costs

Question 1 of 11

Exhibit: Aquila Systems' contract with Delmont Bank

On January 1, Year 1, Aquila Systems signed a contract with Delmont Bank for $150,000, payable $100,000 at signing and $50,000 on December 31, Year 1. Both payments were made on time. The contract includes:

Promise	Standalone selling price	Timing
Security equipment (control passes on delivery)	110,000	Delivered January 1, Year 1
Installation (routine; other firms could do it, and it does not modify the equipment)	20,000	Completed January 20, Year 1
Remote monitoring service for three years	30,000	January 1, Year 1 to December 31, Year 3, evenly

Other facts:

The equipment carries Aquila's standard one-year warranty that it will work as specified; the warranty cannot be bought separately.
Aquila paid its salesperson a $4,500 commission because the contract was signed. Aquila expects to recover the cost.
Aquila judges the contract criteria of Topic 606 met at signing.

How much of the $150,000 transaction price should Aquila allocate to the equipment? Enter a whole-dollar amount.

Your answer (a number, a decimal or a fraction such as 3/4)