Question

"Dexter purchases equipment from Ray Company for a normal market price of $5,000,000. As an incentive, Ray's salesman throws in free installation as part of the deal. The price of the installation service is estimated to have a fair value of $600,000."

Assuming the transaction to be multiple-deliverable arrangement, compute the amount to be allocated to installation. Round your percentage calculations to AT LEAST 4 decimal places.

A) 535,714

B) 600,000

C) 670,200

D) 614,570

Answer 1

A) $535,714

In four decimal places $535,714.2857

Step-by-step explanation:

We bring out the terms

Price of equipment(E)= 5,000,000

Price of installation(I)= 600,000

Price of installation and equipment (T)= 5,600,000

The discount given(D)= I/T*100= (600,000/5,600,000)*100

= 10.7142%

To get the amount to be allocated to installation= D* E

= 0.107142* 5,000,000

= 535,714.285714≈ $535,714