CASE2 Coconut Telegraph
Case 14-3
Coconut Telegraph
Coconut Telegraph Corporation (Coconut) is a developer and provider of specialized customer billings and management software and systems. Coconut’s flagship product, the
Volcano System, is a customer billings and management system consisting of integrated hardware (user interfaces and consoles) and related software. Coconut has never sold, nor does it offer to sell, the Volcano System without the software since the software is necessary for the Volcano System to function as intended.
On February 1, 2012, Coconut entered into an arrangement with Buffett Worldwide Inc.
(Buffett), a restaurant servicer, to deliver the Volcano System and provide one year of postcontract customer support (PCS) beginning March 1, 2012. Buffett paid $12,000 on
February 1, 2012, for the Volcano System and the related PCS. The PCS includes telephone support, repair or replacement of defective parts, any available software updates, and any necessary bug fixes for the software. There is no general right of return on the arrangement. Coconut determined that the arrangement consists of the following two units of accounting with the respective standalone relative selling prices:
1. Customer management system
2. One year of PCS
$12,000
2,000
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. Coconut determined that the standalone relative selling price of the training services and additional PCS were $3,000 and $2,000, respectively. At the time of execution of this agreement, the customer management system had been delivered and all other revenue recognition criteria related to the system were met. The training services are scheduled to begin on June 1, 2012.
Required:
1. Is Coconut’s February 1, 2012, arrangement with Buffett within
Coconut Telegraph
Coconut Telegraph Corporation (Coconut) is a developer and provider of specialized customer billings and management software and systems. Coconut’s flagship product, the
Volcano System, is a customer billings and management system consisting of integrated hardware (user interfaces and consoles) and related software. Coconut has never sold, nor does it offer to sell, the Volcano System without the software since the software is necessary for the Volcano System to function as intended.
On February 1, 2012, Coconut entered into an arrangement with Buffett Worldwide Inc.
(Buffett), a restaurant servicer, to deliver the Volcano System and provide one year of postcontract customer support (PCS) beginning March 1, 2012. Buffett paid $12,000 on
February 1, 2012, for the Volcano System and the related PCS. The PCS includes telephone support, repair or replacement of defective parts, any available software updates, and any necessary bug fixes for the software. There is no general right of return on the arrangement. Coconut determined that the arrangement consists of the following two units of accounting with the respective standalone relative selling prices:
1. Customer management system
2. One year of PCS
$12,000
2,000
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. Coconut determined that the standalone relative selling price of the training services and additional PCS were $3,000 and $2,000, respectively. At the time of execution of this agreement, the customer management system had been delivered and all other revenue recognition criteria related to the system were met. The training services are scheduled to begin on June 1, 2012.
Required:
1. Is Coconut’s February 1, 2012, arrangement with Buffett within