Question

Oriole Company manufactures equipment. Oriole’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. Oriole has the following arrangement with Winkerbean Inc. ? Winkerbean purchases equipment from Oriole for a price of $960,000 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. Using market data, Oriole determines installation service is estimated to have a standalone selling price of $47,000. The cost of the equipment is $550,000. ? Winkerbean is obligated to pay Oriole the $960,000 upon the delivery and installation of the equipment. Oriole 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 $960,000 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 Oriole for this revenue arrangement on June 1, 2017 and September 30, 2017, assuming Oriole 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)

Answer 1

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1. Allocation				960000*%
		Stand Alone Price	%	Allocation
	Equipment	960000	0.953327	915193.64
	Installation	47000	0.046673	44806.36
		1007000		960000
2. Journal Entries
Date	Account	Debit	Credit
1 Jun 17	Accounts Receivable	960000
	Sales Revenue (Equipment)		915194
	Unearned Service Revenue		44806
1 Jun 17	Cost of Goods Sold	550000
	Inventory		550000
30 Sep 17	Cash	960000
	Accounts Receivable		960000
30 Sep 17	Unearned Service Revenue	44806
	Service Revenue		44806