Oriole 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. Oriole has the following arrangement with Blue Spruce Inc. Blue Spruce purchases equipment from Oriole for a price of $910, 100 and contracts with Oriole to install the equipment Oriole charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $643, 000. Blue Spruce is obligated to pay Oriole the $ 910,100 upon the delivery of the equipment. Oriole 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 Oriole 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 $38, 320; Oriole prices these services with a 25% margin relative to cost. How should the transaction price of $910, 100 be allocated among the performance obligations?
Oriole 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. Oriole has the following arrangement with Blue Spruce Inc. Blue Spruce purchases equipment from Oriole for a price of $910, 100 and contracts with Oriole to install the equipment Oriole charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $643, 000. Blue Spruce is obligated to pay Oriole the $ 910,100 upon the delivery of the equipment. Oriole 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 Oriole 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 $38, 320; Oriole prices these services with a 25% margin relative to cost. How should the transaction price of $910, 100 be allocated among the performance obligations?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Oriole 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. Oriole has the following arrangement with Blue Spruce Inc. Blue Spruce
purchases equipment from Oriole for a price of $910, 100 and contracts with Oriole to install the
equipment Oriole charges the same price for the equipment irrespective of whether it does the
installation or not. The cost of the equipment is $643, 000. Blue Spruce is obligated to pay Oriole the $
910,100 upon the delivery of the equipment. Oriole 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 Oriole 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 $38, 320; Oriole prices these services with a 25% margin relative to cost.
How should the transaction price of $910, 100 be allocated among the performance obligations?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education