Hospital Equipment Company (HEC) acquired several fMRI machines for its inventory at a cost of $3,600...

Hospital Equipment Company (HEC) acquired several fMRI machines for its inventory at a cost of $3,600 per machine. HEC usually sells these machines to hospitals at a price of $6,960. HEC also separately sells 12 months of training and repair services for fMRI machines for $1,740. HEC is paid $6,960 cash on November 30 for the sale of an fMRI machine delivered on December 1. HEC sold the machine at its regular price, but included one year of free training and repair service. Required: For the machine sold at its regular price, but with one year of “free” training and repair service, determine the dollar amount of revenue earned from the equipment sale versus the revenue earned from the training and repair services.

Solutions

Expert Solution

As per US GAAP, revenue shoul be recorded on sale of goods when the goods has been transferred to the sellor and all the risks are transferred to the sellor and the receipt of the price of goods is measurable.

In case of service, it should be recorded when the service has been provided to the service receiver and the price of service is measureable.

When free products are offered as part of multiple deliverable transactions, total consideration should be separated and allocated between the elements in accordance with ASC 605- 25, Revenue Recognition—Multiple Element Arrangements.

Revenues from contracts with multiple element arrangements are recognized as each element is earned based on the relative fair value of each element provided the delivered elements have value to customers on a standalone basis. Amounts allocated to each element are based on its objectively determined fair value, such as the sales price for the product or service when it is sold separately or competitor prices for similar products or services.

Here, in this case generally the comapny charges for the training and repair service, however for one of the customers company has provided the service inclusive in the price of goods.

Here, both are the primary business of company, selling of goods and training and repair services.

Since the price of $6,960 includes the cost of both, bifurcation will be done as under:-

Revenue for training and repair services.

= 1740/8700 * 6960 = $1,392

Revenue from selling price of machine.

= 6960/8700 * 6960 = $5,568

ekkarill92 answered 7 months ago

Next > < Previous

Related Solutions

The hospital has acquired medical diagnostic equipment that cost $2,000,000 total. In addition, the hospital had...

The hospital has acquired medical diagnostic equipment that cost $2,000,000 total. In addition, the hospital had to pay $45,000 to have the equipment shipped to it from the manufacturer, and $60,000 to install the equipment. It is expected that the equipment has a 7-year useful life, and a $200,000 salvage value. Calculate the ten years of depreciation using straight line, double declining balance, and sum-of-the-years digits. Equipment Other Cost Full Value Useful Life Salvage Value Depreciable Base Straight-Line1 Annual Depreciation...

Question: The hospital has acquired medical diagnostic equipment that cost $3,000,000 total. In addition, the hospital...

Question: The hospital has acquired medical diagnostic equipment that cost $3,000,000 total. In addition, the hospital had to pay $55,000 to have the equipment shipped to it from the manufacturer, and $60,000 to install the equipment. It is expected that the equipment has a 7-year useful life, and a $200,000 salvage value. Calculate the ten years of depreciation using the straight line, double declining balance, and sum-of-the-years digits. I am getting confused about how to solve and am having issues...

Please Solve the following problem A Hospital just acquired new equipment. The equipment cost $4,250,000 and...

Please Solve the following problem A Hospital just acquired new equipment. The equipment cost $4,250,000 and the organization spent $135,000 on upgrading the physical plant where the equipment will be located. The equipment is expected to have a 10-year useful life and a salvage value of 10% ($425,000), Calculate the first five years of depreciation using straight line, double declining balance, and sum-of-the-years digits. Please show solutions to the following below. Asset Cost: Salvage Value: Asset Life: Straight-line Depreciation Each...

The New York City Hospital has just acquired new equipment. The equipment cost $4,250,000 and the...

The New York City Hospital has just acquired new equipment. The equipment cost $4,250,000 and the organization spent $135,000 on upgrading the physical plant the new equipment will be located in. The equipment is expected to have a 10 year useful life and a salvage value of 10% ($425,000). Calculate the first 5 years of depreciation using SL, DDB and SYD.

Hirsch Company acquired equipment at the beginning of 2017 at a cost of $128,000. The equipment...

Hirsch Company acquired equipment at the beginning of 2017 at a cost of $128,000. The equipment has a five-year life with no expected salvage value and is depreciated on a straight-line basis. At December 31, 2017, Hirsch compiled the following information related to this equipment: Expected future cash flows from use of the equipment $ 109,300 Present value of expected future cash flows from use of the equipment 95,000 Fair value (selling price less costs to dispose) 90,910 Assume that...

Hirsch Company acquired equipment at the beginning of 2017 at a cost of $124,300. The equipment...

Hirsch Company acquired equipment at the beginning of 2017 at a cost of $124,300. The equipment has a five-year life with no expected salvage value and is depreciated on a straight-line basis. At December 31, 2017, Hirsch compiled the following information related to this equipment: Expected future cash flows from use of the equipment $ 106,400 Present value of expected future cash flows from use of the equipment 90,700 ...

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $75,200. The equipment...

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $75,200. The equipment was expected to have a useful life of five years and a residual value of $11,000 and is being depreciated on a straight-line basis. On January 1, 2018, the equipment was appraised and determined to have a fair value of $70,600, a salvage value of $11,000, and a remaining useful life of four years. In measuring property, plant, and equipment subsequent to acquisition under...

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $76,000. The equipment...

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $76,000. The equipment was expected to have a useful life of six years and a residual value of $10,000 and is being depreciated on a straight-line basis. On January 1, 2018, the equipment was appraised and determined to have a fair value of $70,200, a salvage value of $10,000, and a remaining useful life of five years. In measuring property, plant, and equipment subsequent to acquisition under...

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $72,700. The equipment...

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $72,700. The equipment was expected to have a useful life of five years and a residual value of $12,000 and is being depreciated on a straight-line basis. On January 1, 2018, the equipment was appraised and determined to have a fair value of $67,800, a salvage value of $12,000, and a remaining useful life of four years. In measuring property, plant, and equipment subsequent to acquisition under...

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $71,700. The equipment...

Parnell Company acquired construction equipment on January 1, 2017, at a cost of $71,700. The equipment was expected to have a useful life of five years and a residual value of $10,000 and is being depreciated on a straight-line basis. On January 1, 2018, the equipment was appraised and determined to have a fair value of $67,700, a salvage value of $10,000, and a remaining useful life of four years. In measuring property, plant, and equipment subsequent to acquisition under...

Subjects