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Espinoza coffee sells high end coffee machines and monthly coffee subscription bundled together. The fair value of the machine is $ 2,500 and the fair
Espinoza coffee sells high end coffee machines and monthly coffee subscription bundled together. The fair value of the machine is $ 2,500 and the fair value of the coffee subscription is $ 500. The coffee subscription is for 12 months from the date of machine purchase. To be able to compete with a competitor's offering, Espinoza decided to sell the bundle at a discount for $ 2,700. Espinoza began the promotion on December 1, 2020. During its first month of sales, 100 units of this bundle were sold at the discounted price, and expenses were $75,000. Fiscal year end is December 31, 2020. Instructions: a. Calculate the sale price that should be allocated to each component of the bundle using the relative fair value method. b. Calculate the sale price that should be allocated to each component of the bundle using the residual approach. Assuming that the stand-alone selling price of the machine is highly uncertain due to the fierce competition and that the coffee subscription is currently sold on the market for $500. c. Assuming that the relative fair value method is used, what amounts should be reported for machine sales and subscription sales on the December 31, 2020 Statement of Financial Performance? (Note: Ignore any sales made before December.)
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