E18-11 (Allocate Transaction Price) Crankshaft Company manufactures equipment. C

Question

E18-11 (Allocate Transaction Price) Crankshaft Company manufactures equipment. Crankshaft's prod ucts 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 infor mation about the equipment in order for the installed equipment to perform to specifications. Crankshaft has the following arrangement with Winkerbean Inc ·Winkerbean purchases equipment from Crankshaft for a price of $1,000,000 and contracts with t to install the equipment. Crankshaft charges the same price for the equipment Crankshaf

Explanation / Answer

Standalone selling price of installation service = $36000 + 25% = $45000

Note: A combined entry may be recorded on Sep. 30, 2014 for the entire $1,000,000 cash collected.

(a) Item Standalone selling price $ Percent of total standalone value Allocated transaction price $ Equipment 600000 92.31% 923077 Installation 50000 7.69% 76923 650000 100.00% 1000000

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