Whispering Company manufactures equipment. Whispering'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. Whispering has the following arrangement with Winkerbean Inc.

Winkerbean purchases equipment from Whispering for a price of $1,070,000 and contracts with Whispering to install the equipment. Whispering charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Whispering determines installation service is estimated to have a standalone selling price of $54,400. The cost of the equipment is $558,000.Winkerbean is obligated to pay Whispering the $1,070,000 upon the delivery and installation of the equipment.

Whispering delivers the equipment on June 1, 2017, and completes the installation of the equipment on September 30, 2017. 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 Whispering 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 $35,500; Whispering prices these services with a 20% margin relative to cost.

(a)

Your answer is correct.

How should the transaction price of $1,070,000 be allocated among the service obligations?(Do not round intermediate calculations. Round final answers to 0 decimal places.)

Equipment$Installation$

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(b)

Prepare the journal entries for Whispering for this revenue arrangement on June 1, 2017, assuming Whispering 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.)

Account Titles and Explanation

Debit

Credit

(To record sales)

(To record cost of goods sold)

(To record service revenue)

(To record payment received)