Question

Shaw company sold a piece of machinery to Ricard Company for $750,000 on April 2, 2017....

Shaw company sold a piece of machinery to Ricard Company for $750,000 on April 2, 2017. The sales price included installation and a one-year maintenance service. The standalone selling price of the machinery and installation is $708,400. The maintenance service is considered a separate performance obligation and has a standalone price of $61,600.

1. How should the transaction price be allocated among the performance obligations?

2. Prepare the journal entry to record the sale on January 2, 2017.

3. Assume Shaw Company has a December 31 year-end, prepare any necessary year-end entry related to the sale of the machinery.

Business   Accounting   
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Answer #1

1. Sales price and installation = $750,000 x $708,400 / ($708,400+$61,600) = $690,000
Maintenance service = $750,000 x $61,600 / ($708,400+$61,600) = $60,000

No. Date Account Titles Debit Credit
2. April 2, 2017 Cash $750,000
Sale of Machinery $690,000
Unearned revenue from Sale of maintenance service $60,000
3. Unearned revenue from Sale of maintenance service $45,041.10
Revenue from Sale of maintenance service $45,041.10
($60,000 / 365 x (365-91)
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