Question

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 of $1,100,000 and contracts with Tamarisk to install the equipment. Tamarisk charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Tamarisk determines installation service is estimated to have a standalone selling price of $51,000. The cost of the equipment is $630,000. ● Winkerbean is obligated to pay Tamarisk the $1,100,000 upon the delivery and installation of the equipment. Tamarisk 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.

How should the transaction price of $1,100,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places.) Equipment $ Installation $ SHOW LIST OF ACCOUNTS LINK TO TEXT

Prepare the journal entries for Tamarisk for this revenue arrangement on June 1, 2020 and September 30, 2020, assuming Tamarisk 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.) Date Account Titles and Explanation Debit Credit Jun. 1, 2020Sep. 30, 2020 (To record sales) (To record cost of goods sold) Jun. 1, 2020Sep. 30, 2020 (To record service revenue) (To record payment received)

Answer 1

	Answer:
	Total fair value          = $ 1,100,000 + $ 51,000	$ 1,151,000
		Allocated Amount
	Equipment ( $ 1,100,000 x $ 1,100,000 / $ 1,151,000 )	$ 1,051,260
	Equipment ( $ 1,100,000 x $ 51,000 / $ 1,151,000 )	$ 48,740
Date	Account title and explanation	Debit	Credit
June 1, 2020	Account receivable	$ 1,100,000
	Sales revenue		$ 1,051,260
	Unearned service revenue		$ 48,740
	(To record sales)
	Cost of goods sold	$ 630,000
	Inventory		$ 630,000
	(To record cost of goods sold)
Sept 30, 2020	Unearned service revenue	$ 48,740
	Service revenue		$ 48,740
	(To record service revenue)
	Cash	$ 1,100,000
	Account receivable		$ 1,100,000
	(To record payment received)