Test Buy Ltd. entered into a contract with General Store Inc. on May 1, 2021, for the
Question:
Test Buy Ltd. entered into a contract with General Store Inc. on May 1, 2021, for the sale of a commercial air conditioning system. Test Buy agreed to deliver and install the air conditioning system, and train General Store’s staff to use the system, for an all-inclusive price of $42,600. On a stand-alone basis, the air conditioner sells for $42,600.
The fair value of the installation service for the air conditioner is $2,520. The fair value of the training session is $1,700. The cost of the air conditioning system to Test Buy is $19,750. General Store Inc. is required to pay Test Buy $36,200 on delivery of the air conditioner, with the balance due on installation.
On June 17, Test Buy delivered the air conditioner to General Store. However, due to a shortage of available technicians, Test Buy did not install the system until July 1. Test Buy will not provide the training service to General Store staff until August 1.
Assume that the air conditioning system, installation, and training are three distinct performance obligations that should be accounted for separately.
Allocate the transaction price of $42,600 amongst the performance obligations.
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts