Carla Vista Company manufactures products ranging from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $200,000 to $1,500,000 and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order for the installed equipment to perform to specifications. Carla Vista has the following arrangement with Pharoah Inc. Pharoah purchases equipment from Carla Vista for a price of $1,008,900 and contracts with Carla Vista to install the equipment. Carla Vista charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $654,000. Pharoah is obligated to pay Carla Vista the $1,008,900 upon the delivery of the equipment. Carla Vista delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. The equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations which should be accounted for separately. Assuming Carla Vista does not have market data with which to determine the standalone selling price of the installation services. As a result, an expected cost plus margin approach is used. The cost of installation is $44,250; Carla Vista prices these services with a 20% margin relative to cost. (a) How should the transaction price of $1,008,900 be allocated among the performance obligations? (Do not round intermediate calculations. Round final answers to O decimal places, e.g. 5,275.) Equipment $ Installation $ LA
Carla Vista Company manufactures products ranging from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $200,000 to $1,500,000 and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order for the installed equipment to perform to specifications. Carla Vista has the following arrangement with Pharoah Inc. Pharoah purchases equipment from Carla Vista for a price of $1,008,900 and contracts with Carla Vista to install the equipment. Carla Vista charges the same price for the equipment irrespective of whether it does the installation or not. The cost of the equipment is $654,000. Pharoah is obligated to pay Carla Vista the $1,008,900 upon the delivery of the equipment. Carla Vista delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. The equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations which should be accounted for separately. Assuming Carla Vista does not have market data with which to determine the standalone selling price of the installation services. As a result, an expected cost plus margin approach is used. The cost of installation is $44,250; Carla Vista prices these services with a 20% margin relative to cost. (a) How should the transaction price of $1,008,900 be allocated among the performance obligations? (Do not round intermediate calculations. Round final answers to O decimal places, e.g. 5,275.) Equipment $ Installation $ LA
Chapter16: Accounting Periods And Methods
Section: Chapter Questions
Problem 44P
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Transcribed Image Text:Carla Vista Company manufactures products ranging from simple automated machinery to complex systems containing numerous
components. Unit selling prices range from $200,000 to $1,500,000 and are quoted inclusive of installation. The installation process
does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order
for the installed equipment to perform to specifications. Carla Vista has the following arrangement with Pharoah Inc.
Pharoah purchases equipment from Carla Vista for a price of $1,008,900 and contracts with Carla Vista to install the
equipment. Carla Vista charges the same price for the equipment irrespective of whether it does the installation or not. The
cost of the equipment is $654,000.
Pharoah is obligated to pay Carla Vista the $1,008,900 upon the delivery of the equipment.
Carla Vista delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. The
equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations
which should be accounted for separately.
Assuming Carla Vista does not have market data with which to determine the standalone selling price of the installation services. As a
result, an expected cost plus margin approach is used. The cost of installation is $44,250; Carla Vista prices these services with a 20%
margin relative to cost.
(a)
How should the transaction price of $1,008,900 be allocated among the performance obligations? (Do not round intermediate
calculations. Round final answers to O decimal places, e.g. 5,275.)
Equipment
Installation
$
GA
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