Individual Research Paper1. Is the agreement with Buffett on February 1, 2012, within the scope of ASC 985-605? Explain in your own words and provide relevant citations from ASC.On February 1, 2012, SIC entered into an arrangement with Buffett Worldwide Inc. to deliver the Volcano System and provide one year of post-contract customer support. The question is whether or not the agreement between Buffett and SIC is within the scope of ASC 985-605. According to ASC 985-605-15-4e, the transaction between Buffett and SIC is irrelevant to ASC 985-605 because the product or service provided by the transaction needs to be dependent on each other to function. The Volcano System does not require the PCS to function, but it is necessary to have the software for the Volcano System to function as intended. However, the PCS is fully dependent on the Volcano System to serve its purpose. As a result, since the PCS is reliant on the Volcano System to provide its functionality, the transaction falls under the requirement for the transaction to not apply to ASC 985-605. In conclusion, the transaction between Buffett and SIC is not within the scope of ASC 985-605.2. Under ASC 605, should the Volcano System and the PCS be accounted for together or separately? Explain in your own words and provide citation from the ASC.The Volcano System and the PCS are two separate entities with relative standalone selling prices of $12,000 and $2,000 respectively. The agreement between SIC and Buffett is a bundle deal for both the Volcano System and the related PCS for $12,000. When accounting for the sale of the bundle, the question is whether to account for the two items separately or together as one item. According to ASC 605-25-25-5, when a transaction has more than one item being delivered to the customer, for example the Volcano System and the PCS are two items, the delivered item or items shall be accounted for separately if the items have value on a standalone basis. The Volcano System has value by itself because buyers can still have a use for it without the PCS; however, the PCS does not have any value by itself as it is a support system for the Volcano System. Since the PCS has no value by itself, the bundle of the Volcano System and the PCS should be accounted for together in accordance to ASC 605-25-25-5, as it does not meet the requirement to account for the two separately.3. When should the revenue from the Volcano System and the PCS be recognized? Provide explanation in your own words and provide citation from the ASC.According to ASC 605-10-25-1, revenue should be recognized when it has been earned and is realized or realizable. The revenue is earned when the product is delivered to the customer and is realizable when the customer has committed to pay and the seller has no doubt that the customer has the ability to pay. Referring to ASC 605-10-25-1a, Revenue and gains are recognized when it is realized or realizable; meaning the revenue is recognized when the products (goods or services) are exchanged for cash. Therefore, the revenue from the Volcano System should be recognized when the customer received it on March 1, 2012. The revenue recognition for the PCS is supported by ASC 605-10-25-1b, stating the revenue is considered to have been earned only when it has accomplished what it was meant to do. The PCS could not have provided any benefits to the customer when it was first delivered, so the revenue from the PCS should be recognized at the end of each month when it has accomplished it tasks of providing support to its customer. For the first month, the revenue for the PCS is recognized on March 31, 2012.4. Provide journal entries for SIC to recognize revenue on the following dates:a. On February 1, 2012, SIC sold the Volcano System with PCS to Buffett Worldwide, Inc. for $12,000. The journal entry for February 1 is as follows:February 1, 2012Cash$12,000Unearned Revenue$12,000b. On February 28, 2012, there were no services conducted on February 28 regarding the PCS and the sale was already recorded on February 1. So there is no journal entry required.February 28, 2012No Journal Entry.c. The assumption is the PCS can be allocated because it is a service that is provided for a whole year. The cost for the Volcano System and the PCS alone is $12,000 and $2,000 respectively, for a total of $14,000. The agreement is for the two items to cost $12,000 together. Therefore, to allocate the cost of the Volcano System, we take the proportion of its standalone price, $12,000, with the total of $14,000, and multiply it with the agreed upon price of $12,000. The same calculations will be done for PCS. The cost allocated to the Volcano System is (12000/14000) = 86%*12000 = 10320. The cost allocated to the PCS is (2000/14000) = 14%*12000 = 1680. The costs of PCS each month is (1680/12) = 140. The journal entries are as follow:March 1, 2012 Installment of Volcano SystemUnearned Revenue$10,320Revenue$10,320

March 31, 2012 One month of PCSUnearned Revenue$140Revenue$140d. One April 30, another month of PCS is to be recognized.April 30, 2012Unearned Revenue$140Revenue$140e. On May 1, 2012, SIC and Buffett had entered into a separate contract where SIC agreed to provide Buffett with training services for the system and software, and a second year of PCS for a total of $4,500. Standalone prices for the training services and an additional year of PCS are $3,000 and $2,000 respectively. Another month of PCS also needs to be recognized. The journal entries for the month of May are as follows.May 1, 2014Cash$4,500Unearned Revenue$4,500May 31, 2012 One month of PCS.Unearned Revenue$140Revenue$1405. Should the February 1, 2012 and the May 1, 2012 contracts be accounted for separately or combined? Provide explanation in your own words and provide relevant citation from the ASC.The February 1, 2012 contract is for a sale of the Volcano System and one year of PCS. The May 1, 2012 contract is for the training services and an additional year of PCS for the Volcano System. The two contracts are both in relation to the Volcano System and the PCS, so the two separate contracts should be accounted for as a combined unit. According to ASC 605-25-25-3, when separate contracts are related to each other and are entered at or near the same time, then it is presumed that the contracts were negotiated as a single package, therefore, it should be considered and accounted for as a single contract.6. Based on your answer for question 5, provide journal entries to recognize training and PCS revenue on June 30, 2012. List any assumptions and show calculations.The standalone price for the training services is $3,000 and for the additional year of PCS is $2,000. The second agreement between SIC and Buffett is $4,500 for both the training services and the additional year of PCS. So to allocate the cost of the training services, we take the proportion of its standalone price, $3,000, with the total of $5,000, and multiply it with the agreed upon price of $4,500. The cost allocated to the training services is (3000/5000) = 60%*4500 = 2700. For the PCS, we should take the cost allocated to it and combine it with the leftover amount from the first contract to get a new amount to be recognized each month. The cost allocated to PCS for the second contract is (2000/5000) = 40%*4500 = 1800. Three months of PCS has been recognized into revenue, so the leftover amount from the first contract is $1,260 (1680-140-140-140). So the total cost to be allocated to PCS is 1260+1800 = 3060. The new costs of PCS each month is 3060/21 = 146. June 30, 2012Unearned Revenue$2,700Revenue (Training)$2,700Unearned Revenue$146Revenue (PCS)$1467. What sections of the new ASC 606 are relevant to this case? Provide explanation and citation. Would your answers to questions 1-6 change based upon the new standards?The new ASC 606 is a codification that specifies the accounting for revenue received from contracts with customers. Within the new ASC 606, the sections that are relevant to the case are sections 606-10-05-4, 606-10-25-1, 606-10-25-9, 606-10-25-23 and 606-10-32-36. ASC 606-10-05-4 describes how revenue should be recognized when a contract is involved by applying the following five steps: identify the contract, identify the obligations in the contract, determine the transaction price, distribute price to obligations, and recognize the revenue when the obligation is satisfied. ASC 606-10-25 is the recognition section of ASC 606. ASC 606-10-25-1 determines whether the agreement with Buffett and SIC meets the criteria to fall within the scope of ASC 606. This case is within the scope of ASC 606 because the contract between Buffett and SIC meet the criteria established by ASC 606-10-25-1. ASC 606-10-25-9 is relevant to the case because the section explains that two or more contracts should be combined when the contracts are entered into at or near the same time with the same customer. In this case, the contracts from February 1 and May 1 are entered near the same time with the same customer so the two contracts should be combined. ASC 606-10-25-23 is relevant because it explains when the revenue from services, such as the PCS, should be recognized. It states that the revenue should be recognized when the performance has received by the customer. Lastly, ASC 606-10-32-36 is relevant because it has to do with how discounts are allocated for when a customer purchases a bundle of goods or services.Based upon the new standards, my answers to question 3 would change. I would recognize the revenue for the PCS differently because of ASC 606-10-25-23. When referring to ASC 605, I made the assumption that the revenue recognition of PCS should be allocated to end of each month. However, according to ASC 606-10-25-23, it states that the revenue for services, like the PCS, should be recognized when the service from the PCS has been provided. As a result, I would recognize the revenue for the PCS at the beginning of the month when it was delivered because thats when the service has been provided instead of at the end of the month as previously stated in question 3.