Cullumber Company manufactures products ranging from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $200,000 to $1,500,000 and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order for the installed equipment to perform to specifications. Cullumber has the following arrangement with Ivanhoe Inc. Ivanhoe purchases equipment from Cullumber for a price of $1,081,100 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. The cost of the equipment is $652,000. Ivanhoe is obligated to pay Cullumber the $1,081,100 upon the delivery of the equipment. Cullumber delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. The equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations which should be accounted for separately. Assuming Cullumber does not have market data with which to determine the standalone selling price of the installation services. As a result, an expected cost plus margin approach is used. The cost of installation is $45,520; Cullumber prices these services with a 25% margin relative to cost.
Cullumber Company manufactures products ranging from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $200,000 to $1,500,000 and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order for the installed equipment to perform to specifications. Cullumber has the following arrangement with Ivanhoe Inc. Ivanhoe purchases equipment from Cullumber for a price of $1,081,100 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. The cost of the equipment is $652,000. Ivanhoe is obligated to pay Cullumber the $1,081,100 upon the delivery of the equipment. Cullumber delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. The equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations which should be accounted for separately. Assuming Cullumber does not have market data with which to determine the standalone selling price of the installation services. As a result, an expected cost plus margin approach is used. The cost of installation is $45,520; Cullumber prices these services with a 25% margin relative to cost.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Do not give image format
Transcribed Image Text:Your answer is partially correct.
Prepare the journal entries for Cullumber for this revenue arrangement on June 1, 2025 and September 30, 2025, assuming
Cullumber receives payment when installation is completed. (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 O for the amounts. List all debit
entries before credit entries. Record journal entries in the order presented in the problem. Round answers to O decimal places, e.g. 5,275.)
Date
ie 1, 2025
ie 1, 2025 V
1. 30, 2025
).
Account Titles and Explanation
Accounts Receivable
Unearned Service Revenue
Unearned Sales Revenue
(To record sales)
Cost of Goods Sold
Inventory
(To record cost of goods sold)
Unearned Service Revenue
Service Revenue
Debit
949400
570000
0.
60600
Credit
91236
858164
570000
60600
Transcribed Image Text:Cullumber Company manufactures products ranging from simple automated machinery to complex systems containing numerous
components. Unit selling prices range from $200,000 to $1,500,000 and are quoted inclusive of installation. The installation process
does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order
for the installed equipment to perform to specifications. Cullumber has the following arrangement with Ivanhoe Inc.
Ivanhoe purchases equipment from Cullumber for a price of $1,081,100 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. The
cost of the equipment is $652,000.
● Ivanhoe is obligated to pay Cullumber the $1,081,100 upon the delivery of the equipment.
Cullumber delivers the equipment on June 1, 2025, and completes the installation of the equipment on September 30, 2025. The
equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations
which should be accounted for separately.
Assuming Cullumber does not have market data with which to determine the standalone selling price of the installation services. As a
result, an expected cost plus margin approach is used. The cost of installation is $45,520; Cullumber prices these services with a 25%
margin relative to cost.
How should the transaction price of $1,081,100 be allocated among the performance obligations? (Do not round intermediate
calculations. Round final answers to O decimal places, e.g. 5,275.)
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