Assume that on June 30, Dell sells a laptop computer with a one-year warranty for $1,000. Its fiscal year ends September 30 of the current year. Dell estimates that the value of the hardware sold is $960 and the warranty is $40.

Required:

Following the five-step process for revenue recognition, answer the following questions:

1. Identify the contract between the company and customer.

2. Identify the performance obligations (components of the bundled sale).

3. Determine the transaction price.

4. Allocate the transaction price to the performance obligations.

5. Determine the amount of revenue that should be recorded related to the bundled sale in the current year and in the following year.