Pharoah Company manufactures equipment. Pharoah’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. Pharoah has the following arrangement with Winkerbean Inc.● Winkerbean purchases equipment from Pharoah for a price of $960,000 and contracts with Pharoah to install the equipment. Pharoah charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Pharoah determines installation service is estimated to have a standalone selling price of $51,000. The cost of the equipment is $570,000.● Winkerbean is obligated to pay Pharoah the $960,000 upon the delivery and installation of the equipment.Pharoah 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. (a)How should the transaction price of $960,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places.) (b)Prepare the journal entries for Pharoah for this revenue arrangement on June 1, 2020 and September 30, 2020, assuming Pharoah receives payment when installation is completed. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

The answer with workings are as follows:

Answered: a)How should the transaction price of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Pharoah Company manufactures equipment. Pharoah’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. Pharoah has the following arrangement with Winkerbean Inc.

●		Winkerbean purchases equipment from Pharoah for a price of $960,000 and contracts with Pharoah to install the equipment. Pharoah charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Pharoah determines installation service is estimated to have a standalone selling price of $51,000. The cost of the equipment is $570,000.
●		Winkerbean is obligated to pay Pharoah the $960,000 upon the delivery and installation of the equipment.

Pharoah 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.

(a)How should the transaction price of $960,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places.)

(b)Prepare the journal entries for Pharoah for this revenue arrangement on June 1, 2020 and September 30, 2020, assuming Pharoah receives payment when installation is completed. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

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