E18.

13
a) Based on their separate selling prices, the total income of $1,000,000 should be
distributed to the two performance commitments. In this scenario, the equipment's
solo selling price should be $1,000,000, and the installation fee's solo selling price
should be $50,000. $1,050,000 ($1,000,000 + $50,000) is the total standalone
selling price to consider. The following is the distribution.
Equipment ($1,000,000 / $1,050,000) X $1,000,000 = $952,381
Installation ($50,000 / $1,050,000) X $1,000,000 = $ 47,619

b)
debit credit
1,000,000
Accounts Receivable
6/1/2020
Unearned Service
Revenue (Installation) 47,619
Sales Revenue (Equipment) 952,381

Cost of Goods Sold 600,000

6/1/2020
Inventory 600,000

Unearned Service Revenue 47,619

9/30/2020
Service Revenue (Installation) 47,619

Cash 1,000,000
9/30/2020
Accounts Receivable 1,000,000

Because the client owns the asset and thus Crankshaft's performance obligation is
satisfied, the sale of the equipment should be recorded at delivery. The
installation's service income is recognized on September 30, 2020, after the
services have been supplied and the performance requirement has been met.
E18.14
a) The total revenue of $1,000,000 should be allocated to the two performance
obligations based on their standalone selling prices. In this case, the standalone
selling price of the equipment should be considered $1,000,000 and the standalone
selling price of the installation fee, assuming a cost-plus approach is $45,000
[($36,000 + (.25 X $36,000)]. The total standalone selling price to consider is
$1,045,000c ($1,000,000 + $45,000). The allocation is as follows:
Equipment ($1,000,000 / $1,045,000) X $1,000,000 = $956,938
Installation ($45,000 / $1,045,000) X $1,000,000 = $ 43,062
b)
debit credit
Accounts Receivable 1,000,000
6/1/2020 Unearned Service:
Revenue (Installation) 43,062
Sales Revenue (Equipment) 956,938

Cost of Goods Sold 600,000

6/1/2020
Inventory 600,000

Unearned Service Revenue 43,062

9/30/2020
Service Revenue 43,062

Cash 1,000,000
9/30/2020
Accounts Receivable 1,000,000