Question

Facts: Friendly Appliance is a public company (i.e., SEC guidance applies) and is an appliance retailer....

Facts: Friendly Appliance is a public company (i.e., SEC guidance applies) and is an appliance retailer. Assume that Friendly sells a washing machine and installation services together to a customer for $600 and concludes in step 2 of the revenue process that the washing machine is a separate performance obligation from installation services. As of 12/31/X1, Friendly has delivered a washing machine to Customer A, but the delivery crew was missing a part necessary to perform the installation service. The crew has scheduled a return visit to the customer’s home for 1/2/X2 to complete the installation.

Refer to the Friendly Appliance example described in this chapter.

Assume that by the time Friendly completes installation of the washing machine in the year 20X2, its price for selling washing machines (individually, without installation services) has increased to $560. Should this price increase affect Friendly’s allocation for this particular arrangement? Explain.

Homework Answers

Answer #1

In the given case sale of washing machine and delivery of washing machine was made on 12/31/X1 only installation remains that too was scheduled to be done on same day but got postponed on a later date at 02/01/X2.

In year 20X2 prices increased to $560 excluding installation charges while in 20X1 price was $600 including installation charges.

Friendly is selling goods (washing machine) & services (installation), sale of washing machine is year 20X2 is regarded as sale in that year only even if installation remains due. This increase in prices should not affect the previous sale even if service part is due, as customer has custody of good.

Price increase in 20X2 should not affect the sale made in 20X1. Price increase will not affect Friendly’s allocation for this particular arrangement made on 12/31/20X1.

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