) Baldi Piano manufactures customized pianos for concert halls. On July 1, 2016,

Question

) Baldi Piano manufactures customized pianos for concert halls. On July 1, 2016, Baldi signed a contract to deliver a concert piano for $50,000 Under the contract, Baldi is also obligated to provide a one-year maintenance service, If sold separately, the piano and the maintenance service would have cost$45,000and $15,009 respectively. How much of the transaction price would be allocated to the piano and the maintenance service, assuming they are separate performance obligations? [10 points] To earn all points, show your work including the factorís) used

Explanation / Answer

Depending upon the nature of the performance obligations, an entity may need to use a combination of methods if certain performance obligations have highly variable or uncertain standalone selling prices.

Once the selling prices have been determined, the entity will apply the relative values to the total contract consideration and estimate the amount of the transaction price to be recognized as each promise is fulfilled.

so in this case piano cost is 45000 which is 75 % of total and maitenance service cost is 25% of total cost so,

the adjusted transaction price for piano is 50000*(75/100)=$37500

and adjusted the transaction price for maitenance service is 50000*(25/100)=$12500.

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