3. Piglet Piano manufactures customized pianos for concert halls. On June 1, 201

Question

3. Piglet Piano manufactures customized pianos for concert halls. On June 1, 2018, Piglet signed a contract to deliver a concert piano for $460,000. Under the contract, Piglet is also obligated to provide a one-year maintenance service. If sold separately, the piano and the maintenance service would have cost $388,855 and $79,645, respectively a. How much of the transaction price would be allocated to the piano and the maintenance service, assuming they are separate performance obligations? Show your work. b. Assuming that cash was paid upon delivery, prepare any journal entry that Piglet would record (ignore the journal to reduce inventory): (1) At the inception of the contract and CCOUNT TITLESDEBIT CREDIT (2) At the end of 2018 to recognize all revenue associated with this contract that should be recognized in 2018 (round answer to nearest whole dollar) CCOUNT TITLES DEBIT CREDIT

Explanation / Answer

SOLUTION:

PART-1)

Stand –alone price

Piano

388,855

83%

Maintenance service

79,645

17%

468,500

Allocation of 460,000

Piano (460,000 * 83%)

381,800

Maintenance service (460,000 * 17%)

78,200

PART-2)

JOURNAL ENTRIES

Debit

Credit

June 1, 2018

Cash

460,000

Sales revenue – Piano

381,800

Deferred Revenue-Service

78,200

December 31, 2018

Deferred Revenue-Service

45,617

Service revenue

45,617

(78,200*7/12)

Stand –alone price

Piano

388,855

83%

Maintenance service

79,645

17%

468,500

Allocation of 460,000

Piano (460,000 * 83%)

381,800

Maintenance service (460,000 * 17%)

78,200

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