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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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Rix Company sells home appliances and provides installation and service for its customers. On April 1, 2019, a customer purchased a dishwasher that Rix normally sells for $1,000. In addition, the customer purchased the installation service and a 3-year service contract, with stand-alone selling prices of $200 and $400, respectively. Because the customer purchased all three items as a bundle, Rix charged the customer $1,400.

Required:

  1. 1. How should the transaction price be allocated among the products?
  2. 2. Prepare the journal entries to recognize revenue related to each product in 2019.

1.

To determine

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

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

Calculate the transaction price for dishwasher:

Transactionpricefordishwasher}=[Pricechargedtothecustomer×SellingpriceofdishwasherTotalsellingprice]=$1,400×$1,000$1,600=$875

Therefore, the transaction price for dishwasher is $875.

Calculate the transaction price for installation:

Transactionpriceforinstallation}=[Pricechargedtothecustomer×Selling

2.

To determine

Journalize entries to recognize revenue associated to each product in 2019.

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