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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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GameDay sells recreational vehicles along with secure parking storage to customers. Game Day sells the FB7 model for $62,000, and this price includes one year of secure parking storage. GameDay also sell secure parking storage separately for $8,000 per year, and customers can purchase the FB7 model without secure parking storage for $60,000. If a customer purchases the FB7 model with secure parking storage, how should GameDay allocate the transaction price?

To determine

State the manner in which the transaction price must be allocated.

Explanation

Transaction price: Transaction price is the amount of consideration that is estimated by the company to be authorized in exchange, for delivering the promised goods and services to the customer. Transaction price is examined by the seller by analyzing the terms of the contract and the normally conducts of the business.

The transaction price must be assigned correspondingly depending upon the relative “stand-alone selling prices”.

Calculate the transaction price allocated to FB7 model:

TransactionpriceallocatedtoFB7model}=[(PurchasepriceofFB7modelwithoutsecureparkingstoragePurchasepriceofFB7modelwithsecureparkingstorage)×SellingpriceofFB7model]=$60,000$68,000×$62,000=$54,706

Therefore, the amount of transaction price allocated to transaction price model is $54,706

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