Trueblood Case 14-3: Coconut Telegraph
Brett O’Baker
9/14/15
Facts: * Coconut Telegraph Corporation (Coconut) is a developer and provider of specialized customer billings and management software and systems * On February 1, 2012, Coconut entered into an arrangement with Buffett Worldwide Inc. (Buffett) to deliver the Volcano System and provide one year of post-contract customer support (PCS) beginning March 1, 2012. * Buffett paid $12,000 on February 1, 2012, for the Volcano System and the related PCS.
On May 1, 2012, and in a separate contract, Coconut agreed to provide Buffett with (1) training services on the customer management system and (2) an additional year of PCS. * Under the terms of this agreement, Buffett immediately paid consideration of $4,500 for the additional services. 1. Is Coconut’s February 1, 2012, arrangement with Buffett within the scope of ASC 985-605?
Per ASC 985-605-15-3c, the software and software-related elements of arrangements that include software that is more-than-incidental to the products or services in the arrangement as a whole are within the scope. Indicators that software is more-than-incidental to the products or services in an arrangement as a whole include (but are not limited to):
1. The software is a significant focus of the marketing effort or is sold separately.
2. The vendor is providing post-contract customer support.
3. The vendor incurs significant costs that are within the scope of Subtopic 985-20. The Feb 1 arrangement includes the Volcano System and the PCS which is placing it within the scope. 2. On the basis of the response to Question 1, discuss the revenue recognition accounting literature that would be applied to each unit of accounting in the February 1, 2012, arrangement. Provide the cumulative revenue recognized and deferred revenue balance related to the Buffett