Blossom Company manufactures equipment. Blossom's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $400,000 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. Blossom has the following arrangement with Richetti Inc. Richetti purchases equipment from Blossom for a price of $970,000 and contracts with Blossom to install the equipment. Blossom charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $555,000. Richetti is obligated to pay Blossom the $970,000 upon the delivery and installation of the equipment. Blossom delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. 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. Assume Blossom 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 $36,200, Blossom prices these services with a 25% margin relative to cost. (a) How should the transaction price of $970,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to O decimal places, e.g. 5,275.) Equipment $ Installation $
Blossom Company manufactures equipment. Blossom's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $400,000 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. Blossom has the following arrangement with Richetti Inc. Richetti purchases equipment from Blossom for a price of $970,000 and contracts with Blossom to install the equipment. Blossom charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $555,000. Richetti is obligated to pay Blossom the $970,000 upon the delivery and installation of the equipment. Blossom delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. 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. Assume Blossom 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 $36,200, Blossom prices these services with a 25% margin relative to cost. (a) How should the transaction price of $970,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to O decimal places, e.g. 5,275.) Equipment $ Installation $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Blossom Company manufactures equipment. Blossom's products range from simple automated machinery to complex systems
containing numerous components. Unit selling prices range from $400,000 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. Blossom has the following arrangement with Richetti Inc.
Richetti purchases equipment from Blossom for a price of $970,000 and contracts with Blossom to install the equipment.
Blossom charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the
equipment is $555,000.
Richetti is obligated to pay Blossom the $970,000 upon the delivery and installation of the equipment.
Blossom delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. 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.
Assume Blossom 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 $36,200, Blossom prices these services with a 25%
margin relative to cost.
(a)
How should the transaction price of $970,000 be allocated among the service obligations? (Do not round intermediate calculations.
Round final answers to O decimal places, e.g. 5,275.)
Equipment $
Installation
69
$
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