Headland Company manufactures equipment. Headland's products range from simple automated machinery to complex systems containing numerous components. Unit selling pricesrange 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 requireproprietary 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 equipmentirrespective 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 theequipment 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 isused. 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.)

The Standalone Selling Price is the price at which the entity would sell a good or service…

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Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

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.)

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