Transcribed Image Text: (20 minutes) IBM Corp. is a public company that manufactures and sells computer equipment and provides support services. IBM’s customers can purchase

Transcribed Image Text: (20 minutes)
IBM Corp. is a public company that manufactures and sells computer equipment and
provides support services. IBM’s customers can purchase computer equipment or support
services separately, but the company also offers computer equipment that includes
support as a package.
On October 1, 2020, Next Web Ltd. enters into a contract to purchase a computer
equipment and support package from IBM. The contract is for $100 million and includes
the computer equipment and 10 years of support services once the computer equipment
is delivered.
The computer equipment that was purchased by Next Web would normally sell for $95 C
million and 10 years of support services would be valued at $15 million if purchased
separately. IBM’s management expects the computer equipment to be delivered by
October 1, 2021. The support is expected to be provided evenly for 10 years after
delivery of the computer equipment.
The contract requires Next Web to make a $15-million payment to IBM within 30 days
signing the contract and then $35 million on October 1, 2021, with the balance to be pa
annually over 10 years once the computer equipment is delivered on October 1, 2021.
Next Web has secured financing to pay for the computer equipment and so IBM’s
management has no concerns related to collectability.
Required
1. Assuming that IBM provides the goods and services as and when expected under th
contract and Next Web makes its payments as required, determine when and how
much revenue IBM would be able to recognize as part of the contract. Use the mode
for revenue recognition introduced in class and the textbook in preparing your
response. Round percentages to the nearest two decimal places.
2. Based on your analysis in part “1” prepare the required journal entries on October 1,
2020, October 31, 2020 and October 1, 2021.
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