Question: Buffalo Company manufactures equipment. Buffalo'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. Buffalo has the following arrangement with Winker bean Inc.
Question: Buffalo Company manufactures equipment. Buffalo'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. Buffalo has the following arrangement with Winker bean Inc.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question: Buffalo Company manufactures equipment. Buffalo'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. Buffalo has the following arrangement with Winker bean Inc.
• Winker bean purchases equipment from Buffalo for a price of $1,020,000 and contracts with Buffalo to install the
equipment. Buffalo charges the same price for the equipment irrespective of whether it does the installation or not.
Using market data, Buffalo determines installation service is estimated to have a standalone selling price of $45,000.
The cost of the equipment is $560,000.
• Winker bean is obligated to pay Buffalo the $1,020,000 upon the delivery and installation of the equipment. Buffalo
delivers the equipment on June 1, 2017, and completes the installation of the equipment on September 30, 2017. 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. How should the transaction price of $1,020,000 be allocated
among the service obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places.)
Equipment $
Installation $
Prepare the journal entries for Buffalo for this revenue arrangement on June 1, 2017 and September 30, 2017,
assuming Buffalo receives payment when installation is completed. (Credit account titles are automatically indented
when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and
enter 0 for the amounts.)
Date Account Titles and Explanation Debit Credit
(To record sales)
(To record cost of goods sold)
(To record service revenue)
(To record payment received)
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