Question

Name: Date: 1. Allocate transaction price. The Appliance Store is an experienced home appliance dealer. Appliance Store also offers a number of services together with the home appliances that it sells. Assume that Appliance Store sells dishwashers on a standalone basis. Appliance Store also sells installation services and maintenance services for dishwashers. However, Appliance Store does not offer installation or maintenance services to customers who buy dishwashers from other vendors. Pricing for dishwashers is as follows. Dishwasher only Dishwasher with Installation service Dishwasher with maintenance services Dishwasher with installation and maintenance services $1,140 1,260 1,380 1.450 In each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $240. Additionally, the incremental amount charged by Appliance Store for installation approximates the amount charged by independent third parties. Dishwashers are sold subject to a general right of return. Ifa customer purchases a dishwasher with installation and/or maintenance services, in the event Appliance Store does not complete the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds $1,140. Instructions (a) Assume that a customer purchases a dishwasher with both installation and maintenance services for $1,450. Based on its experience, Appliance Store believes that it is probable that the installation of the equipment will be performed satisfactorily to the customer. Assume that the maintenance services are priced separately. Identify the separate performance obligations related to the Appliance Store revenue arrangement. (b) indicate the amount of revenue that should be allocated to the dishwasher the installation, and to the maintenance contract. (e) Prepare the necessary journal entry for the Appliance Store.

Answer 1

(a)

For purpose of revenue realization, each economic event has to be considered separately. The delivery of dishwasher to customer will enable the business to recognize for the  revenue from sale of dish washer. Where as Installation charges can be accounted only at the time of satisfactorily completing the installation.

The maintenance service charges needs to deferred until the event of maintenance occurs or on the date on which contractual maintenance period ends.

(b)

Revenue on Dishwasher sales = $1,140.00

Revenue from Installation = Dishwasher with Installation - Dishwasher = $1,260.00 - $1,140.00 =$120.00

Revenue from Maintenance services = 240

When a customer opts for Dishwasher with installation and maintenance service the amount charged is $1,450.00 which is $50.00 less than ($1,140.00+$120.00+$240.00 ) $1,500.00

The discount of 50 needs to accounted separately.at the event of all the components provided to customer at the time of sales of dishwasher.

(c)

Date	Particulars	Debit	Credit
	Accounts Receivable	$1,450.00
	Discount Allowed	$50.00
	Revenue - Sale Dishwasher		$1,140.00
	Revenue - Installation		$120.00
	Deferred Revenue - Maintenance services		$240.00