Reference no: EM132937828
Panarin Company entered into two contracts on the same date with Hjalmarsson Corporation. Panarin has provided the following analysis of price and cost for the contracts:
Contract A Contract B
Contract price $125,000 $80,000
Cost of related goods 70,000 55,000
Gross profit (loss) $55,000 $25,000
Hjalmarsson, the customer, may cancel both contracts if either of them is not fulfilled by Panarin in a timely manner. Stand-alone prices are typically $120,000 for the goods in Contract A and $80,000 for the goods in Contract B.
Required:
Problem 1: Should the two contracts be combined for purposes of applying the five-step revenue recognition model?
Problem 2: What amount of revenue should Panarin associate with each of the contracts?
Problem 3: When should revenue be recognized on each of the contracts?