Crankshaft Company manufactures equipment. Crankshaft'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. Crankshaft has the following arrangement with Winkerbean SA. Winkerbean purchases equipment from Crankshaft for a price of €1,000,000 and contracts with Crankshaft to install the equipment. Crankshaft charges the same price for the equipment whether it does the installation or not. Using market data, Crankshaft determines installation service is estimated to have a standalone selling price of €50,000. The cost of the equipment is €600,000. Winkerbean is obligated to pay Crankshaft the €1,000,000 upon the delivery and installation of the equipment. Crankshaft delivers and installs the equipment on September 30, 2022. 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. Instructions a. How should the transaction price of €1,000,000 be allocated among the service obligations? b. Prepare the journal entries for Crankshaft for this revenue arrangement on September 30, 2022, assuming Crankshaft receives payment when installation is completed.
Crankshaft Company manufactures equipment. Crankshaft'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. Crankshaft has the following arrangement with Winkerbean SA. Winkerbean purchases equipment from Crankshaft for a price of €1,000,000 and contracts with Crankshaft to install the equipment. Crankshaft charges the same price for the equipment whether it does the installation or not. Using market data, Crankshaft determines installation service is estimated to have a standalone selling price of €50,000. The cost of the equipment is €600,000. Winkerbean is obligated to pay Crankshaft the €1,000,000 upon the delivery and installation of the equipment. Crankshaft delivers and installs the equipment on September 30, 2022. 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. Instructions a. How should the transaction price of €1,000,000 be allocated among the service obligations? b. Prepare the journal entries for Crankshaft for this revenue arrangement on September 30, 2022, assuming Crankshaft receives payment when installation is completed.
Chapter16: Accounting Periods And Methods
Section: Chapter Questions
Problem 43P
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Crankshaft Company manufactures equipment. Crankshaft'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. Crankshaft has the following arrangement with Winkerbean SA.
Winkerbean purchases equipment from Crankshaft for a price of €1,000,000 and
contracts with Crankshaft to install the equipment. Crankshaft charges the same price
for the equipment whether it does the installation or not. Using market data, Crankshaft
determines installation service is estimated to have a standalone selling price of €50,000.
The cost of the equipment is €600,000.
Winkerbean is obligated to pay Crankshaft the €1,000,000 upon the delivery and
installation of the equipment
Crankshaft delivers and installs the equipment on September 30, 2022. 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.
Instructions
a. How should the transaction price of €1,000,000 be allocated among the service obligations?
b. Prepare the journal entries for Crankshaft for this revenue arrangement on September 30,
2022, assuming Crankshaft receives payment when installation is completed.
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