Company prepares monthly financial statements. Company sells precision equipment. They also sell service agreements for calibrating precision
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Question:
Company prepares monthly financial statements. Company sells precision equipment. They also sell service agreements for calibrating precision equipment (both to their customers and the public). MachineX normally sells for $54,000. A 12-month agreement to calibrate the equipment on a monthly basis normally sells for $6,000 ($500 per month).
- In January Company sells a customer a package that includes MachineX and the calibration agreement. The total contract price is $48,000.
- The equipment is delivered to the customer in January.
- The calibration services will be provided over 12 months beginning in February.
There are 2 performance obligations in this package, the equipment sale and the calibration agreement.
- What amount is allocated to the equipment sale performance obligation?
- What amount is allocated to the calibration agreement performance obligation?
- How much revenue is recognized in January related to this customer's contract? (Ignore any expenses- this is about the revenue only)
- How much revenue is recognized in February related to this customer's contract? (Ignore any expenses- this is about the revenue only)
Indicate and label your final answers to each part at the top of the answer box.
Show your work after stating all 4 answers
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