Crankshaft Company manufactures equipment.

Crankshaft’s products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $200,000 to $1.5 million, and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment to perform to specifications. Crankshaft has the following arrangement with Winkerbean Inc.

• Winkerbean purchases equipment from Crankshaft on May 2, 2020, for a price of $1 million and contracts with Crankshaft to install the equipment. Crankshaft charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Crankshaft determines that the installation service is estimated to have a fair value of $50,000. The cost of the equipment is $600,000.

• Winkerbean is obligated to pay Crankshaft the $950,000 upon delivery of the equipment and the balance on the completion of the installation.

Crankshaft delivers the equipment on June 1, 2020, and completes the installation of the equipment on September 30, 2020. Assume that the equipment and the installation are two distinct performance obligations that should be accounted for separately.

Instructions

a. Allocate the transaction price of $1 million among the performance obligations of the contract. Round percentage allocations to two decimal places and final amounts to the nearest dollar. Assume Crankshaft follows IFRS.

b. Prepare any journal entries for Crankshaft on May 2, June 1, and September 30, 2020.