Hinton Inc. is a software company that sells inventory management software and user support bundled together. The fair value of the software is $2,000, and the fair value of the user support is $500. The user support is valid for a period of 12 months from the date of the software purchase. In order to match a competitor's offering, Hinton decides to sell the bundle at a discount for $2,200. The software and the user support are considered separate performance obligations. During April, 50 units of the bundled software were sold at the discounted price. The cost of the units is $1,000 each. Required: Calculate the sales price that should be allocated to each component of the bundle using the relative fair value approach. Provide the journal entry to record the sale of the units in April.
Hinton Inc. is a software company that sells inventory management software and user support bundled together. The fair value of the software is $2,000, and the fair value of the user support is $500. The user support is valid for a period of 12 months from the date of the software purchase. In order to match a competitor's offering, Hinton decides to sell the bundle at a discount for $2,200. The software and the user support are considered separate performance obligations. During April, 50 units of the bundled software were sold at the discounted price. The cost of the units is $1,000 each. Required: Calculate the sales price that should be allocated to each component of the bundle using the relative fair value approach. Provide the journal entry to record the sale of the units in April.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- Hinton Inc. is a software company that sells inventory management software and user support bundled together. The fair value of the software is $2,000, and the fair value of the user support is $500. The user support is valid for a period of 12 months from the date of the software purchase. In order to match a competitor's offering, Hinton decides to sell the bundle at a discount for $2,200. The software and the user support are considered separate performance obligations.
During April, 50 units of the bundled software were sold at the discounted price. The cost of the units is $1,000 each.
Required:
- Calculate the sales price that should be allocated to each component of the bundle using the relative fair value approach.
- Provide the
journal entry to record the sale of the units in April.
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