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Question: HVAC Inc enters into a contract to manufacture, install and service a cooling system for UCSC for $300,000. The contract includes installation which is
Question: HVAC Inc enters into a contract to manufacture, install and service a cooling system for UCSC for $300,000. The contract includes installation which is valued $30,000 and a service contract over the life of the system (10 years) valued at $1,500 per year. The cooling system cost HVAC, Inc. $200,000 to manufacture, $20,000 in labor to install and is immaterial to service. The system cannot be operated without the installation but installation and service contracts are commonly available and "value" amounts above approximate market values. The Company provides a 90 day warranty on all systems and management estimates the cost of honoring the warranty to average $4,000 per system in parts and labor. The system is paid in full on 9/1/19, delivered on 9/15/19 and installed during the month of October. Assuming books are closed monthly, what are journal entries related to revenue and COGS recognition at each date below? 9/1/19 9/15/19 10/31/19 11/30/19 Describe how you allocated the revenue to the performance obligations (i.e. what method) and why was that method appropriate for the circumstances? Question: HVAC Inc enters into a contract to manufacture, install and service a cooling system for UCSC for $300,000. The contract includes installation which is valued $30,000 and a service contract over the life of the system (10 years) valued at $1,500 per year. The cooling system cost HVAC, Inc. $200,000 to manufacture, $20,000 in labor to install and is immaterial to service. The system cannot be operated without the installation but installation and service contracts are commonly available and "value" amounts above approximate market values. The Company provides a 90 day warranty on all systems and management estimates the cost of honoring the warranty to average $4,000 per system in parts and labor. The system is paid in full on 9/1/19, delivered on 9/15/19 and installed during the month of October. Assuming books are closed monthly, what are journal entries related to revenue and COGS recognition at each date below? 9/1/19 9/15/19 10/31/19 11/30/19 Describe how you allocated the revenue to the performance obligations (i.e. what method) and why was that method appropriate for the circumstances
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