Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ace Company manufactures equipment. Aces products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $130,000 to $1,100,000

Ace Company manufactures equipment. Aces products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $130,000 to $1,100,000 and are quoted inclusive of installation. The installation process does NOT involve changes to the features of the equipment to perform specifications. Ace has the following relationship with Rose Inc. Rose can purchase equipment from Ace for a price of $500,000 and contracts with Ace to install the equipment. Using market data, Rose determines installation service is estimated to have a fair value of $50,000. The cost of the equipment is $200,000. Rose is obligated to pay Ace the $500,000 upon delivery and installation of the equipment. Ace delivers the equipment on August 1, 2020, and completes the installation of the equipment on October 1, 2020. The equipment has a useful life of 7 years. Assume the equipment and the installations are two distinct performance obligations that should be accounted for separately.

a) How should the transaction price of $500,000 be allocated among the service obligations?

b) Prepare the journal entries for Ace for this revenue arrangement for 2020, assuming Ace receives payment when installation is completed.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting And Finance For Your Small Business

Authors: Eric James Burton, Steven M Bragg

1st Edition

9780471323600

More Books

Students also viewed these Accounting questions

Question

If z = x4 - 5x2 + 6x + 3y3 - 5y + 7, find z / x and z / y.

Answered: 1 week ago