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Cullumber Company manufactures equipment. Cullumber's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $400,000 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. Cullumber has the following arrangement with Uli Inc. • Uli purchases equipment from Cullumber for a price of $1,040,000 and contracts with Cullumber to install the equipment. Cullumber charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $652,000. Uli is obligated to pay Cullumber the $1,040,000 upon the delivery and installation of the equipment. Cullumber delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. 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. Assume Cullumber 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 $38,700; Cullumber prices these services with a 25%

Cullumber Company manufactures equipment. Cullumber's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $400,000 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. Cullumber has the following arrangement with Uli Inc. • Uli purchases equipment from Cullumber for a price of $1,040,000 and contracts with Cullumber to install the equipment. Cullumber charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $652,000. Uli is obligated to pay Cullumber the $1,040,000 upon the delivery and installation of the equipment. Cullumber delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. 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. Assume Cullumber 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 $38,700; Cullumber prices these services with a 25%

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Cullumber Company manufactures equipment. Cullumber's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $400,000 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. Cullumber has the following arrangement with Uli Inc. Uli purchases equipment from Cullumber for a price of $1,040,000 and contracts with Cullumber to install the equipment. Cullumber charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $652,000. Uli is obligated to pay Cullumber the $1,040,000 upon the delivery and installation of the equipment. Cullumber delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. 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. Assume Cullumber 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 $38,700; Cullumber prices these services with a 25% margin relative to cost. (a) × Your answer is incorrect. How should the transaction price of $1,040,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to O decimal places, e.g. 5,275.) Equipment $ 1002688 Installation $ 37312
Transcribed Image Text:Cullumber Company manufactures equipment. Cullumber's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $400,000 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. Cullumber has the following arrangement with Uli Inc. Uli purchases equipment from Cullumber for a price of $1,040,000 and contracts with Cullumber to install the equipment. Cullumber charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $652,000. Uli is obligated to pay Cullumber the $1,040,000 upon the delivery and installation of the equipment. Cullumber delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. 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. Assume Cullumber 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 $38,700; Cullumber prices these services with a 25% margin relative to cost. (a) × Your answer is incorrect. How should the transaction price of $1,040,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to O decimal places, e.g. 5,275.) Equipment $ 1002688 Installation $ 37312
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