a)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.) (b)Prepare the journal entries for Pharoah for this revenue arrangement on June 1, 2020 and September 30, 2020, assuming Pharoah 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.)
a)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.) (b)Prepare the journal entries for Pharoah for this revenue arrangement on June 1, 2020 and September 30, 2020, assuming Pharoah 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.)
Chapter18: Accounting Periods And Methods
Section: Chapter Questions
Problem 60P: Ostrich Company makes gasoline storage tanks. Everything produced is under contract (that is, the...
Related questions
Question
Pharoah Company manufactures equipment. Pharoah’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. Pharoah has the following arrangement with Winkerbean Inc.
Pharoah delivers the equipment on June 1, 2020, and completes the installation of the equipment on September 30, 2020. 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.
● | Winkerbean purchases equipment from Pharoah for a price of $960,000 and contracts with Pharoah to install the equipment. Pharoah charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Pharoah determines installation service is estimated to have a standalone selling price of $51,000. The cost of the equipment is $570,000. | |
● | Winkerbean is obligated to pay Pharoah the $960,000 upon the delivery and installation of the equipment. |
Pharoah delivers the equipment on June 1, 2020, and completes the installation of the equipment on September 30, 2020. 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.
(a)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.)
(b)Prepare the journal entries for Pharoah for this revenue arrangement on June 1, 2020 and September 30, 2020, assuming Pharoah 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.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Individual Income Taxes
Accounting
ISBN:
9780357109731
Author:
Hoffman
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Individual Income Taxes
Accounting
ISBN:
9780357109731
Author:
Hoffman
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning