Allocating the Transaction Price. HeavyEQ produces large conveyor belt systems for heavy manufacturing. HeavyEQ signs a...

Allocating the Transaction Price. HeavyEQ produces large conveyor belt systems for heavy manufacturing. HeavyEQ signs a $2 million ﬁxed-price contract under which it makes three promises:

Install a conveyor belt system: fair value $1.6 million
Service the system over a ﬁve-year period: fair value $0.6 million
Provide a warranty assuring that the conveyer belt meets the contract speciﬁcation at the time of sale: fair value $0.2 millioN

REQUIRED

a. Allocate the transaction price to the performance obligations.

b. Reallocate the transaction price under the notion that HeavyEQ has no reasonable basis for determining the fair value of the servicing because the conveyor system is of such a unique nature that the servicing activities are highly variable and uncertain

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Expert Solution

Colby Messinger answered 1 year ago

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