Question

In: Accounting

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

Metlock Company manufactures equipment. Metlock’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. Metlock has the following arrangement with Winkerbean Inc.

Winkerbean purchases equipment from Metlock for a price of $930,000 and contracts with Metlock to install the equipment. Metlock charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Metlock determines installation service is estimated to have a standalone selling price of $45,000. The cost of the equipment is $590,000.
Winkerbean is obligated to pay Metlock the $930,000 upon the delivery and installation of the equipment.


Metlock 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.

(a)

How should the transaction price of $930,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places.)

Equipment $
Installation $

Solutions

Expert Solution

Answer:
Total Cost
      = Purchase Price + Standalone selling price
      = $ 930,000 + $ 45,000
      =   $ 975,000
(a)
Allocated transaction price for Equipment
             =   Purhase Price / Total Cost x transaction Price
             =   $ 930,000 / $ 975,000 x $ 930,000
             =   $ 887,077
Equipment =   $ 887,077
Allocated transaction price for Installation
             =   Standalone selling price / Total Cost x transaction Price
             =   $ 45,000 / $ 975,000 x $ 930,000
             =   $ 42,923
Installation =   $ 42,923

Related Solutions

Culver Company manufactures equipment. Culver’s products range from simple automated machinery to complex systems containing numerous...
Culver Company manufactures equipment. Culver’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. Culver has the following arrangement with Winkerbean Inc. ● Winkerbean purchases equipment from Culver for a price...
Ace Company manufactures equipment. Ace’s products range from simple automated machinery to complex systems containing numerous...
Ace Company manufactures equipment. Ace’s products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $130,000 to $1,100,000 and are quoted inclusive of installation. The installation process does NOT involve changes to the features of the equipment to perform specifications. Ace has the following relationship with Rose Inc. Rose can purchase equipment from Ace for a price of $500,000 and contracts with Ace to install the equipment. Using market data, Rose determines installation...
Flint Company manufactures equipment. Flint’s products range from simple automated machinery to complex systems containing numerous...
Flint Company manufactures equipment. Flint’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. Flint has the following arrangement with Winkerbean Inc. ● Winkerbean purchases equipment from Flint for a price...
Tamarisk Company manufactures equipment. Tamarisk’s products range from simple automated machinery to complex systems containing numerous...
Tamarisk Company manufactures equipment. Tamarisk’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. Tamarisk has the following arrangement with Winkerbean Inc. ● Winkerbean purchases equipment from Tamarisk for a price...
Indigo Company manufactures equipment. Indigo’s products range from simple automated machinery to complex systems containing numerous...
Indigo Company manufactures equipment. Indigo’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. Indigo has the following arrangement with Winkerbean Inc. ● Winkerbean purchases equipment from Indigo for a price...
Indigo Company manufactures equipment. Indigo’s products range from simple automated machinery to complex systems containing numerous...
Indigo Company manufactures equipment. Indigo’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. Indigo has the following arrangement with Winkerbean Inc. ● Winkerbean purchases equipment from Indigo for a price...
Nash Company manufactures equipment. Nash’s products range from simple automated machinery to complex systems containing numerous...
Nash Company manufactures equipment. Nash’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. Nash has the following arrangement with Winkerbean Inc. ● Winkerbean purchases equipment from Nash for a price...
Carla Vista Company manufactures equipment. Carla Vista’s products range from simple automated machinery to complex systems...
Carla Vista Company manufactures equipment. Carla Vista’s products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $235,000 to $1,620,000, and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment to perform to specifications. Carla Vista has the following arrangement with Winkerbean Inc. • Winkerbean purchases equipment from Carla Vista on May 2, 2020, for a price of $1,100,000 and contracts with Carla Vista...
Metlock Company leased equipment from Costner Company, beginning on December 31, 2019. The lease term is...
Metlock Company leased equipment from Costner Company, beginning on December 31, 2019. The lease term is 5 years and requires equal rental payments of $75,477 at the beginning of each year of the lease, starting on the commencement date (December 31, 2019). The equipment has a fair value at the commencement date of the lease of $320,000, an estimated useful life of 5 years, and no estimated residual value. The appropriate interest rate is 9%. Click here to view factor...
Problem B Deere & Company manufactures, distributes, and finances a full range of agricultural equipment; a...
Problem B Deere & Company manufactures, distributes, and finances a full range of agricultural equipment; a broad range of industrial equipment for construction, forestry, and public works; and a variety of lawn and grounds care equipment. The company also provides credit, health care, and insurance products for businesses and the general public. Consider the following information from the Deere & Company Annual Report: (in millions) Year 1 Year 2 Year 3 Year 4 Sales $12,791 $13,822 $11,751 $13,137 Cost of...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT