Diversified Industries manufactures sump-pumps. Its most popular product is called the Super Soaker, which costs $650...
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Diversified Industries manufactures sump-pumps. Its most popular product is called the Super Soaker, which costs $650 to manufacture and $200 to install. Diversified sells the Super Soaker directly to commercial customers for $1,300 a unit and will install the unit for an additional $250. Although the Super Soaker is its main source of revenue, Diversified also provides monthly maintenance services for the convenience of its customers, for an additional fee. Diversified outsources maintenance services at a cost of $8 an hour. Diversified also sells the Super Soaker to home improvement retailers for $1,100 a unit. Diversified had the following Super Soaker revenue arrangements during the first quarter of 20Y1: Arrangement A: Diversified sold 40 Super Soakers to a major business in a flood-prone area for a negotiated contract price of $60,000. The Super Soakers are delivered and installed on February 1, 20Y1, and full payment is made. Diversified agreed to include installation and a 3-year monthly maintenance service in the contract price, in addition to the pumps. Diversified typically charges $15 per month per unit for the maintenance plan. The contractor spends 1 hour/month maintaining each unit. Arrangement B: On March 25, Diversified delivered 400 Super Soakers to Lowe's and received payment in full upon delivery. To encourage sales, Diversified offers Lowe's customers a coupon for 50% off a 3-year monthly maintenance service provided directly by Diversified Industries. Customers cannot obtain the discount coupon otherwise. Historically, similar coupons had a 50% redemption rate. By March 31, none of the coupons had been used by Lowe's customers, but they had not yet expired. REVENUE RECOGNITION PROCESS Complete the five steps of the revenue recognition process for each arrangement, using the table below as a guide. STEP 1. Identify the contract with customers. 2. Identify the separate performance obligations in the contract. ARRANGEMENT A ARRANGEMENT B Provide 40 Super Soakers, installation, and a monthly service plan for $60,000 Provide 400 Super Soakers to Lowe's, with a 50% off coupon for $440,000 3. Determine the transaction price. 4. Allocate the transaction price to the separate performance obligations. 5. Recognize revenue when each performance obligation is satisfied. Revenue recognized by March 31: Revenue recognized by March 31: Diversified Industries manufactures sump-pumps. Its most popular product is called the Super Soaker, which costs $650 to manufacture and $200 to install. Diversified sells the Super Soaker directly to commercial customers for $1,300 a unit and will install the unit for an additional $250. Although the Super Soaker is its main source of revenue, Diversified also provides monthly maintenance services for the convenience of its customers, for an additional fee. Diversified outsources maintenance services at a cost of $8 an hour. Diversified also sells the Super Soaker to home improvement retailers for $1,100 a unit. Diversified had the following Super Soaker revenue arrangements during the first quarter of 20Y1: Arrangement A: Diversified sold 40 Super Soakers to a major business in a flood-prone area for a negotiated contract price of $60,000. The Super Soakers are delivered and installed on February 1, 20Y1, and full payment is made. Diversified agreed to include installation and a 3-year monthly maintenance service in the contract price, in addition to the pumps. Diversified typically charges $15 per month per unit for the maintenance plan. The contractor spends 1 hour/month maintaining each unit. Arrangement B: On March 25, Diversified delivered 400 Super Soakers to Lowe's and received payment in full upon delivery. To encourage sales, Diversified offers Lowe's customers a coupon for 50% off a 3-year monthly maintenance service provided directly by Diversified Industries. Customers cannot obtain the discount coupon otherwise. Historically, similar coupons had a 50% redemption rate. By March 31, none of the coupons had been used by Lowe's customers, but they had not yet expired. REVENUE RECOGNITION PROCESS Complete the five steps of the revenue recognition process for each arrangement, using the table below as a guide. STEP 1. Identify the contract with customers. 2. Identify the separate performance obligations in the contract. ARRANGEMENT A ARRANGEMENT B Provide 40 Super Soakers, installation, and a monthly service plan for $60,000 Provide 400 Super Soakers to Lowe's, with a 50% off coupon for $440,000 3. Determine the transaction price. 4. Allocate the transaction price to the separate performance obligations. 5. Recognize revenue when each performance obligation is satisfied. Revenue recognized by March 31: Revenue recognized by March 31:
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Related Book For
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Posted Date:
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