You have just started as the accountant for Pearson Manufacturing Company, and the CFO asks for your expertise. Pearson has entered into an arrangement with a customer to sell and install a new piece of machinery for $450,000. This is the price for which Pearson normally sells the machinery to customers without installation. The customer is obligated to pay Pearson upon delivery of the machinery. Pearson does not normally install machinery for its customers but has decided to make an exception for this customer in the hope that it will lead to additional business. The price of the installation service when it is performed by other companies is normally $25,000. There are no refund rights in the sale.
The CFO wants to know if the machinery and the installation service are separable units of accounting in the sale.
Directions
Research the GAAP and prepare a short memo that summarizes whether the machinery and installation are separable units of accounting in the sale. Cite your reference(s) and applicable paragraph numbers.