Exercise 18-14 Account Titles and Explanation Debit Credit (To record sales) (To

Question

Exercise 18-14

Account Titles and Explanation

Debit

Credit

(To record sales)

(To record cost of goods sold)

(To record service revenue)

(To record payment received)

Exercise 18-14

Concord Company manufactures equipment. Concord’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. Concord has the following arrangement with Winkerbean Inc.
Winkerbean purchases equipment from Concord for a price of $920,000 and contracts with Concord to install the equipment. Concord charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Concord determines installation service is estimated to have a standalone selling price of $50,500. The cost of the equipment is $643,000. Winkerbean is obligated to pay Concord the $920,000 upon the delivery and installation of the equipment.
Concord delivers the equipment on June 1, 2017, and completes the installation of the equipment on September 30, 2017. 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.

Assuming Concord does not have market data with which to determine the standalone selling price of the installation services. As a result, an expected cost plus margin approach is used. The cost of installation is $32,500; Concord prices these services with a 20% margin relative to cost.

Explanation / Answer

Solution:

Answer (a):

Standalone selling price of installation service = $32,500 +20% = $39,000

.

The transaction price of $920,000 be allocated among the service obligations:

93%

  

7%

.

Answer (b):

Standalone selling price of installation service = $32,500 +20% = $39,000

.

The journal entries for Concord for this revenue arrangement on June 1, 2017:

Note: A combained entry may be recorded on sep 30,2017 for the entire $920,000 cash collected.

Item Standlone selling price ($) Percent of total standlone value Allocated transaction price ($) Equipment $643,000 94% $864,800 Installation $39,000 6% $55,200 Total $682,000 100% $920,000

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.