Cullumber Company manufactures equipment. Cullumber’s products
range from simple automated machinery to complex systems containing
numerous components. Unit selling prices range from $250,000 to
$1,590,000, and are quoted inclusive of installation. The
installation process does not involve changes to the features of
the equipment to perform to specifications. Cullumber has the
following arrangement with Winkerbean Inc.
• | Winkerbean purchases equipment from Cullumber on May 2, 2020, for a price of $1,146,000 and contracts with Cullumber to install the equipment. Cullumber charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Cullumber determines that the installation service is estimated to have a fair value of $54,000. The cost of the equipment is $500,000. | |
• | Winkerbean is obligated to pay Cullumber the $1,092,000 upon delivery of the equipment and the balance on the completion of the installation |
Cullumber delivers the equipment on June 1, 2020, and completes the
installation of the equipment on September 30, 2020. Assume that
the equipment and the installation are two distinct performance
obligations that should be accounted for separately.
Allocate the transaction price of $1,146,000 among the performance obligations of the contract. Assume Cullumber follows IFRS. (Round percentage allocations to 2 decimal places, e.g. 12.25 and final answers to 0 decimal places, e.g. 5,275.)
Prepare any journal entries for Cullumber on May 2, June 1, and September 30, 2020. (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. Record journal entries in the order presented in the problem.) |
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Part 1 | |||||
Standalone Price | Ratio | Transaction Price | Allocation | ||
Equipment | $ 1,146,000 | 0.955 | $ 1,146,000 | $ 1,094,430 | |
Installation | $ 54,000 | 0.045 | $ 1,146,000 | $ 51,570 | |
Total | $ 1,200,000 | $ 1,146,000 | |||
Part 2 | |||||
Date | Account | Debit | Credit | ||
May 2 | No Entry | ||||
Jun 1 | Accounts Receivable | $ 1,146,000 | |||
Unearned Service Revenue | $ 51,570 | ||||
Sales Revenue | $ 1,094,430 | ||||
Jun 1 | Cost of Goods Sold | $ 500,000 | |||
Inventory | $ 500,000 | ||||
Sep 30 | Unearned Service Revenue | $ 51,570 | |||
Service Revenue-Installation | $ 51,570 | ||||
Sep 30 | Cash | $ 1,146,000 | |||
Accounts Receivable | $ 1,146,000 | ||||
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