How should the transaction price of $1,040,000 be allocated among the service obligations? (
How should the transaction price of $1,040,000 be allocated among the service obligations? (
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![Headland Company manufactures equipment. Headland'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. Headland has the following arrangement with Winkerbean Inc.
Winkerbean purchases equipment from Headland for a price of $1,040,000 and contracts with Headland to install the equipment. Headland charges the same price for the equipment
irrespective of whether it does the installation or not. The cost of the equipment is $620,000.
Winkerbean is obligated to pay Headland the $1,040,000 upon the delivery and installation of the equipment.
Headland 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 Headland 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 $35,700; Headland prices these services with a 20% margin relative to cost.
XYour answer is incorrect. Try again.
How should the transaction price of $1,040,000 be allocated among the service obligations? (Do not round Intermedlate calculations. Round final answers to 0 declmal places.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4154e63b-fd77-4ffb-97eb-897493316ce7%2F514a1824-6d32-4ab6-b949-b72ff5ecb866%2Fixcql8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Headland Company manufactures equipment. Headland'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. Headland has the following arrangement with Winkerbean Inc.
Winkerbean purchases equipment from Headland for a price of $1,040,000 and contracts with Headland to install the equipment. Headland charges the same price for the equipment
irrespective of whether it does the installation or not. The cost of the equipment is $620,000.
Winkerbean is obligated to pay Headland the $1,040,000 upon the delivery and installation of the equipment.
Headland 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 Headland 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 $35,700; Headland prices these services with a 20% margin relative to cost.
XYour answer is incorrect. Try again.
How should the transaction price of $1,040,000 be allocated among the service obligations? (Do not round Intermedlate calculations. Round final answers to 0 declmal places.)
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