Allocate transaction price.

Shipley Appliance Store is an experienced home appliance dealer. Shipley also offers a number of services together with the home appliances that it sells. Assume that Shipley sells dishwashers on a standalone basis. Shipley also sells installation services and maintenance services for dishwashers. However, Shipley does not offer installation or maintenance services to customers who buy dishwashers from other vendors. Pricing for dishwashers is as follows.

In each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $$120.$ Additionally, the incremental amount charged by Shipley for installation approximates the amount charged by independent third parties.

Instructions

$($a$)$ Assume that a customer purchases a dishwasher with both installation and maintenance services for $$725.$ Based on its experience, Shipley believes that it is probable that the installation of the equipment will be performed satisfactorily to the customer. Assume that the maintenance services are priced separately. Identify the separate performance obligations related to Shipley's revenue arrangement.

$($b$)$ Indicate the amount of revenue that should be allocated to the dishwasher, the installation, and to the maintenance contract.

$($c$)$ Prepare the necessary journal entry for Shipley.