Novak Company manufactures equipment. Novak's products range from simple automated machinery to complex systems containing

numerous components. Unit selling prices range from $$400,000$ to $$1,500,000$ and are quoted inclusive of installation. The

installation process does not involve changes to the features of the equipment and does not require proprietary information about

the equipment in order for the installed equipment to perform to specifications. Novak has the following arrangement with

Henderson Inc.

Henderson purchases equipment from Novak for a price of $$1,080,000$ and contracts with Novak to install the equipment.

Novak charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the

equipment is $$651,000.$

Henderson is obligated to pay Novak the $$1,080,000$ upon the delivery and installation of the equipment.

Novak delivers the equipment on June $1,2020,$ and completes the installation of the equipment on September $30,2020.$ The

equipment has a useful life of $10$ years. Assume that the equipment and the installation are two distinct performance obligations

which should be accounted for separately.

Assuming Novak does not have market data with which to determine the standalone selling price of the installation services. As a

result, an expected cost plus margin approach is used. The cost of installation is $$34,000$; Novak prices these services with a $30\%$

margin relative to cost$.$

$($a$)$

Your Answer

How should the transaction price of $$1,080,000$ be allocated among the service obligations? $($Do not round intermediate

calculations. Round final answers to $0$ decimal places.$)$

Equipment $,$$

Installation $

$($b$)$

Prepare the journal entries for Novak for this revenue arrangement in $2020$ assuming Novak receives payment when installation

is completed. $($Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is

required, select $"$No entry" for the account titles and enter $0$ for the amounts.$)$