M6-12 Allocating Transaction Price to Performance Obligations [LO 6-5] A company
ID: 2341261 • Letter: M
Question
M6-12 Allocating Transaction Price to Performance Obligations [LO 6-5] A company that usually sells satellite TV equipment for $50 and two years of satellite TV service for $450 has a special, time-limited offer in which it sells the equipment for $300 and gives the two years of satellite service for "free." If the company sells one of these packages on July 1, how much revenue should the company recognize on July 1 when it delivers the equipment and receives the full price in cash? (Do not round intermediate calculations.)Explanation / Answer
Revenue that should be recognised is the price allocated to the Equipment based on the original price Ratios.
Share of price to the Equipment = (50/500) = 0.1
Therefore, price allocated to Satellite Equipment in offer price of $300 = 300 * 0.1 = $30
Sales Revenue on July 1 = $30
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