Question

Humphreys' Elevators sells and installs elevators for large commercial buildings. The installation process does not require changes to the elevator, so this service can be performed by any licensed professional. The selling price for the elevator is the same, regardless of whether Humphreys installs the elevator. On April 2, Humphreys enters into a contract to sell and install an elevator for a major commercial customer. The customer makes a downpayment on April 2. The balance of the contract price is due upon installation of the elevator. On April 15, Humphreys sells and delivers an elevator to the customer. This elevator is installed on May 31. The following information pertains to the customer contract: Contract price $ 238,149 Fair value of elevator installation service $ 4,763 Downpayment made by customer at time of contract signing $ 23,815 Cost of the elevator to Humphreys $ 142,889 Required: 1. Determine the appropriate allocation of the selling price to the different performance obligations. Round any calculations to 2 decimal places. 2. Prepare any required journal entries on April 2, April 15, and May 31. Assume that the customer pays for the elevator on May 31.

Answer 1

1)contract price =238149

total expense for th ecompany= 142889+4763=147652

selling price for elevator = (142889/147652)x238149=$230466.72

selling price for service=(4763/147652)x238149=$7682.28

2)

APRIL 2

down payment by customer

  

	DEBIT	CREDIT
CASH A/C	23815
CUSTOMER ADVANCE A/C		23815

APRIL 15

SALE OF ELEVATOR

	DEBIT	CREDIT
DEBTOR A/C	206651.72
CUSTOMER ADVANCE A/C	23815
SALES A/c		230466.72

MAY 31

INSTALTION AND PAYMENT BY CUSTOMER

	DEBIT	CREDIT
CASH A/C	214334
DEBTOR A/C		206651.72
SALES A/C		7682.28