(a) How should the transaction price of $1,020,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to O decimal places.) Equipment $ Installation $ eTextbook and Media List of Accounts Save for Later Attempts: 0 of 5 used Submit Answer
(a) How should the transaction price of $1,020,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to O decimal places.) Equipment $ Installation $ eTextbook and Media List of Accounts Save for Later Attempts: 0 of 5 used Submit Answer
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:Windsor Company manufactures equipment. Windsor's products range from simple automated machinery to complex systems
containing numerous components. Unit selling prices range from $200,000 to $1,500,000 and are quoted inclusive of installation.
The installation process does not involve changes to the features of the equipment and does not require proprietary information
about the equipment in order for the installed equipment to perform to specifications. Windsor has the following arrangement with
Winkerbean Inc.
Winkerbean purchases equipment from Windsor for a price of $1,020,000 and contracts with Windsor to install the
equipment. Windsor charges the same price for the equipment irrespective of whether it does the installation or not. The
cost of the equipment is $565,000.
Winkerbean is obligated to pay Windsor the $1,020,000 upon the delivery and installation of the equipment.
Windsor delivers the equipment on June 1, 2020, and completes the installation of the equipment on September 30, 2020. The
equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations
which should be accounted for separately.
Assuming Windsor does not have market data with which to determine the standalone selling price of the installation services. As a
result, an expected cost plus margin approach is used. The cost of installation is $35,800; Windsor prices these services with a 25%
margin relative to cost.
Transcribed Image Text:(a)
How should the transaction price of $1,020,000 be allocated among the service obligations? (Do not round intermediate
calculations. Round final answers to O decimal places.)
Equipment $
Installation $
eTextbook and Media
List of Accounts
Save for Later
Attempts: 0 of 5 used Submit Answer
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