Solved: Crankshaft Company manufactures equipment

Crankshaft s products range from simple automated

Crankshaft Company manufactures equipment Crankshaft s products range from simple
automated

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 Inc.

• 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
irrespective of 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 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.

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 June 1, 2017 and
September 30, 2017, assuming Crankshaft receives payment when installation is completed.

Crankshaft Company manufactures equipment Crankshaft s products range from simple

automated

ANSWER
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range-from-simple-automated/

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