Reference no: EM131785394
Problem
Cullumber Company manufactures equipment. Cullumber's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $400,000 to $1,800,000, and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment to perform to specifi-cations. Cullumber has the following arrangement with Winkerbean Inc.
• Winkerbean purchases equipment from Cullumber for a price of $900,000 and contracts with Cullumber to install the equipment. Cullumber charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Cullumber determines that the installation service is estimated to have a fair value of $55,000. The cost of the equipment is $700,000.
• Winkerbean is obligated to pay Cullumber the $900,000 upon delivery and installation of the equipment.
Cullumber delivers the equipment on June 1, 2017, and completes the installation of the equipment on September 30, 2017. The equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations that should be accounted for separately.
(a) How should the transaction price of $900,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places, e.g. 5,275.)
(b) Prepare the journal entries for Cullumber for this revenue arrangement in 2017, assuming Cullumber receives payment when installation is completed. (Round final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)