Smart Cookie Learning Centers enters into a contract to customize and sell its LaLa tutoring software to the Westbro United School District. The contract price is $ 6,000,000 and must be paid to Smart Cookie immediately. Under the terms of the contract, Smart Cookie must deliver the software at the end of a two- year period. The interest rate incurred on similar financing agreements in the industry is 8%.
Required
a. Is there a significant financing component in this contract?
b. If there is a significant financing component, determine the amount of sales revenue and interest expense to be recognized by Smart Cookie.