Diversified Industries manufactures sump-pumps. Its most popular product is called the Super Soaker, which costs $650 to manufacture and $200 to install. Diversified sells the Super Soaker directly to commercial customers for $1,300 a unit and will install the unit for an additional $250. Although the Super Soaker is its main source of revenue, Diversified also provides monthly maintenance services for the convenience of its customers, for an additional fee. Diversified outsources maintenance services at a cost of $8 an hour.Diversified also sells the Super Soaker to home improvement retailers for $1,100 a unit.Diversified had the following Super Soaker revenue arrangements during the first quarter of 20Y1:

Arrangement A:Diversified sold 40 Super Soakers to a major business in a flood-prone area for a negotiated contract price of $60,000. The Super Soakers are delivered and installed on February 1, 20Y1, and full payment is made. Diversified agreed to include installation and a 3-year monthly maintenance service in the contract price, in addition to the pumps. Diversified typically charges $15 per month per unit for the maintenance plan. The contractor spends 1 hour/month maintaining each unit.

Arrangement B: On March 25, Diversified delivered 400 Super Soakers to Lowe's and received payment in full upon delivery. To encourage sales, Diversified offers Lowe's customers a $150 mail-in rebate. Historically, similar rebates had a 50% redemption rate. By March 31, Diversified has not received any rebates. Diversified uses the expected value method.

REVENUE RECOGNITION PROCESS

Complete the five steps of the revenue recognition process for each arrangement, using the table below as a guide.

STEP

ARRANGEMENT A

ARRANGEMENT B

1.Identify the contract with customers.

Provide 40 Super Soakers, installation and a monthly service plan for $60,000

Provide 400 Super Soakers to Lowe's, with a $150 mail-in rebate for $440,000

2.Identify the separate performance obligations in the contract.

3.Determine the transaction price.

4.Allocate the transaction price to the separate performance obligations.

5.Recognize revenue when each performance obligation is satisfied.

Revenue recognized by March 31:

Revenue recognized by March 31:

FINANCIAL STATEMENTS

Using the following template, please show how the above arrangements impacted Diversified's Statement of Cash Flows, Income Statement, and Balance Sheet for the first quarter of 20Y1. For the Balance Sheet, indicate cumulative changes to the Balance Sheet as a result of this transaction. These amounts will not necessarily equal the ending balances in the Balance Sheet accounts. Some lines might not have answers. List account names or transaction descriptions in the first column and amounts in the other columns. Assume all transactions are for cash unless told otherwise. Some hints have been provided for you to assist you in completing the activity.