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What is the performance obligation

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Question - Comfort King Ltd. sells central air units to residents as well as ongoing maintenance plans. Jack Frost agreed to an arrangement with Comfort King to purchase a central air package for $4,000 on May 1, 2020.  In addition to the sale, the arrangement includes unit installation and maintenance on the central air unit for a period of two years.  Jack Frost is indeed receiving a great deal as the full contract price represents the stand-alone value of the central air unit. Comfort King also provide installation and central air maintenance separately to its customers as follows: installation fee $400, annual central air maintenance fee $250.  Comfort King installed the unit on May 20, 2020, and was immediately paid the agreed upon price by Jack Frost.

Required - Complete the following steps to determine if the appropriate criteria has been met for Comfort King to recognize revenue under the contract-based approach to revenue recognition. Be sure to conclude whether Comfort King can recognize the revenue and when it would be appropriate to do so.

-Is there a contract?

-What is the performance obligation?

-What is the transaction price?

-Is there a need to allocate the purchase price?

-Has the performance obligation been satisfied?

Reference no: EM133084897

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