Part B$.(10$ marks$)$

At the beginning of March $2021,$ Alpha Inc. entered into a $$880,000$ contract with a customer

to supply a sophisticated mainframe computer plus two years of regular service. The computer

had a selling price of $$810,000$ and the service was sold separately for $$90,000.$ The customer

paid cash for the entire contract on March $2,2019,$ when the computer was delivered to the

customer.

Instructions

a$)$ Allocate the sale price of $$840,000$ to the separate performance obligations, based on the

relative fair value approach $($stand$-$alone prices$).$ Round to nearest dollar. $(3$ marks$)$

$7$

Question # $4($contd$)$

b$)$ Give the journal entry$($ies $)$ required for Alpha on March $2,2021.$ Ignore the cost of goods

sold entry. $(3$ marks$)$

Debit Credit

c$)$ Compute the total amount of revenue to be recognized by Alpha related to the above

contract for $2021.$ Alpha has a December $31$ year$-$end. $(2$ marks$)$

Total amount of revenue for $2021$ related to contract:$\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

d$)$ Assume as above that the computer has a selling price of $$810,000$ but the stand$-$alone

value of the service contract cannot be determined using objective and reliable information,

allocate the $$880,000$ sales price to the separate performance obligations. $(2$ marks$).$