How should the transaction price of $991,800 be allocated among the performance obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places, e.g. 5,275.)
How should the transaction price of $991,800 be allocated among the performance obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places, e.g. 5,275.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Vishnu
Transcribed Image Text:Ivanhoe Company manufactures products ranging 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. Ivanhoe has the following arrangement with Kingbird Inc.
Kingbird purchases equipment from Ivanhoe for a price of $991,800 and contracts with Ivanhoe to install the equipment.
Ivanhoe charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the
equipment is $601,000.
● Kingbird is obligated to pay Ivanhoe the $991,800 upon the delivery of the equipment.
Ivanhoe 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.
Assuming Ivanhoe 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 $41,760; Ivanhoe prices these services with a 25%
margin relative to cost.
(a)
* Your answer is incorrect.
How should the transaction price of $991,800 be allocated among the performance obligations? (Do not round intermediate
calculations. Round final answers to 0 decimal places, e.g. 5,275.)
Equipment $
Installation
tA
939,600
52,200
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