Question

Winchell wrote a contract that involves two separate performance obligations. Winchell cannot estimate the stand-alone selling price of product A. Product B has a stand-alone selling price of $100. The price for the combined product is $120. How much of the transaction price would be allocated to the performance obligation for delivering product A?

Multiple Choice
a. $50.
b. $40.
c. $30.
d. $20.

Answer 1

The amount of the transaction price allocated to Product A is $20, as it is the remainder after allocating the stand-alone selling price of Product B from the combined price.

Step-by-step explanation:

In a contract with two separate performance obligations where the stand-alone selling price of one product cannot be estimated, the transaction price must be allocated based on the stand-alone selling price that is available. Since the stand-alone selling price of Product B is $100 and the combined price for both products is $120, we can deduce that the remaining $20 of the transaction price would be allocated to Product A.

Therefore, the portion of the transaction price that would be allocated to the performance obligation for delivering product A is $20.

The correct multiple-choice answer is d. $20.