Crankshaft Company manufactures equipment. Crankshaft'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. Crankshaft has the following arrangement with Winkerbean Inc. Winkerbean purchases equipment from Crankshaft for a price of $1,000,000 and contracts with Crankshaft to install the equipment. Crankshaft charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Crankshaft determines installation service is estimated to have a standalone selling price of $50,000. The cost of the equipment is $600,000. Winkerbean is obligated to pay Crankshaft the $1,000,000 upon the delivery and installation of the equipment. Crankshaft delivers the equipment on June 1, 2017, and completes the installation of the equipment on September 30, 2017. 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. How should the transaction price of $1,000,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places.) Equipment Installation $ $
Crankshaft Company manufactures equipment. Crankshaft'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. Crankshaft has the following arrangement with Winkerbean Inc. Winkerbean purchases equipment from Crankshaft for a price of $1,000,000 and contracts with Crankshaft to install the equipment. Crankshaft charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Crankshaft determines installation service is estimated to have a standalone selling price of $50,000. The cost of the equipment is $600,000. Winkerbean is obligated to pay Crankshaft the $1,000,000 upon the delivery and installation of the equipment. Crankshaft delivers the equipment on June 1, 2017, and completes the installation of the equipment on September 30, 2017. 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. How should the transaction price of $1,000,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places.) Equipment Installation $ $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Crankshaft Company manufactures equipment. Crankshaft'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. Crankshaft
has the following arrangement with Winkerbean Inc.
Winkerbean purchases equipment from Crankshaft for a price of $1,000,000 and
contracts with Crankshaft to install the equipment. Crankshaft charges the same price
for the equipment irrespective of whether it does the installation or not. Using market
data, Crankshaft determines installation service is estimated to have a standalone
selling price of $50,000. The cost of the equipment is $600,000.
Winkerbean is obligated to pay Crankshaft the $1,000,000 upon the delivery and
installation of the equipment.
Crankshaft delivers the equipment on June 1, 2017, and completes the installation of the equipment
on September 30, 2017. 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.
How should the transaction price of $1,000,000 be allocated among the service obligations? (Do not
round intermediate calculations. Round final answers to 0 decimal places.)
Equipment
Installation
$
$
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