[Anonymous]

I asked one of my graduate professors for a review problem to brush up on revenue recognition and this is what he gave me… Can someone help me figure this out? Please show any and all calculations because apparently I need all the review I can get…

Acme Equipment Co. is an experienced dealer of manufacturing equipment. Acme Equipment Co. also offers a number of services together with the equipment that it sells including installation and maintenance contracts. For one particular piece of equipment the pricing is as follows:

a.  Equipment only: $ 75,000
b.  Equipment with installation service: $ 80,000
c.  Equipment with maintenance services: $ 95,000
d.  Appliance W with installation and maintenance services: $98,000.

If maintenance services are provided for equipment Acme sells or other similar equipment, the separate price of the maintenance service is $20,000. Acme provides maintenance agreements for similar equipment it did not sell for the same price. The $5,000 installation fee Acme charges is consistent with that charged by independent third parties. Acme does not perform installation services on equipment it does not sell.

Equipment sold by Acme is subject to a right of return. If customer purchases equipment with installation and/or maintenance services, and Acme does not complete the services satisfactorily, the customer is entitled to a refund only of the portion of the fee that exceeds $75,000.

Required: Assume a customer purchases this equipment on October 1, 2015 paying $98,000 for the equipment, installation, and the maintenance service (covers next five years). Acme installs the equipment on November 1, 2015. How much revenue can Acme recognize on October 1, 2015? How much revenue can Acme recognize on November 1, 2015? How much revenue can Acme recognize for the maintenance services in 2015?