Question

BigBoy Equipment Inc. sells heavy-duty forklift trucks. Model 217A has a stand-alone price of $138,000. BigBoy offers to sell the 217A inclusive of a three-year service contract for $177,600.

Required:
Prepare a journal entry to record the sale of one Model 217A forklift truck plus service contract for $177,600 assuming: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. A comparable service contract is sold separately for $92,000. BigBoy uses the relative stand-alone value method for multiple deliverables.

2. The service contract has a variable stand-alone value ranging from $53,500 to $92,000 and BigBoy uses the residual value method.

• Record the sale of Model 217A assuming comparable service contract is sold separately and using relative fair value method.

• Record the sale of Model 217A assuming the service contract has a variable stand-alone value ranging from $30,000 to $70,000 and BigBoy uses the residual method.

Answer 1