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

Transcribed Image Text:

Sweet Company manufactures equipment. Sweet's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from 200,000 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. Sweet has the following arrangement with Winkerbean SA. Winkerbean purchases equipment from Sweet for a price of 1,020,000 and contracts with Sweet to install the equipment. Sweet charges the same price for the equipment whether it does the installation or not. The cost of the equipment is 565,000. Winkerbean is obligated to pay Sweet the 1,020,000 upon the delivery and installation of the equipment. Sweet delivers and installs the equipment on September 30, 2022. 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. Assume Sweet does not have the market data 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 35,800; Sweet prices these services with a 25% margin relative to cost. (a) How should the transaction price of 1,020,000 be allocated among the service obligations? (Round intermediate calculations to 5 decimal places, e.g. 5.13257 and final answers to O decimal places, e.g. 5,125.) Equipment Installation Sweet Company manufactures equipment. Sweet's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from 200,000 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. Sweet has the following arrangement with Winkerbean SA. Winkerbean purchases equipment from Sweet for a price of 1,020,000 and contracts with Sweet to install the equipment. Sweet charges the same price for the equipment whether it does the installation or not. The cost of the equipment is 565,000. Winkerbean is obligated to pay Sweet the 1,020,000 upon the delivery and installation of the equipment. Sweet delivers and installs the equipment on September 30, 2022. 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. Assume Sweet does not have the market data 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 35,800; Sweet prices these services with a 25% margin relative to cost. (a) How should the transaction price of 1,020,000 be allocated among the service obligations? (Round intermediate calculations to 5 decimal places, e.g. 5.13257 and final answers to O decimal places, e.g. 5,125.) Equipment Installation