LMZ Computer Systems Inc LMZ's 2018 Sales of Maintenance Agreements Is Set Out Below

question 16

Essay

LMZ Computer Systems Inc.maintains office equipment under contract.The contracts are for labour only;customers must reimburse LMZ for parts.LMZ's rate schedule follows:
$$\begin{array} { | l | l | l | l | } \hline & \text { One year } & \text { Two years } & \text { Three years } \\\hline \text { Photocopies } & \$ 220 & 400 & 620 \\\hline \text { Fax machine } & \$ 175 & 340 & 440 \\\hline\end{array}$$
LMZ's 2018 sales of maintenance agreements is set out below:
$$\begin{array} { | l | l | l | l | } \hline & \text { One year } & \text { Two years } & \text { Three years } \\\hline \text { Photocopies } & 20 & 12 & 30 \\\hline \text { Fax machine } & 24 & 20 & 30 \\\hline\end{array}$$
Required:
Assuming that sales occurred evenly through the year:
a.What amount of revenue will LMZ recognize for the year ended December 31,2018?
b.What amount of deferred revenue will LMZ report as a current liability on December 31,2018?
c.What amount of deferred revenue will LMZ report as a non-current liability on December 31,2018?

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Definitions:

Accounts Receivable

Money owed to a company by its customers for goods or services that have been delivered but not yet paid for.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption or loss of value over time.

Indirect Method

A cash flow statement approach that adjusts net income for non-cash transactions and changes in working capital to calculate cash flow from operations.

Operating Activities Section

Part of a cash flow statement that shows the cash generated or used by a company’s core business operations.