Question

E6-15 Allocating Transaction Price to Performance Obligations [LO 6-5] A company separately sells home security equipment and 12 months of system monitoring service for $280 and $560, respectively. The company sells an equipment/monitoring bundle on January 1 for a total price of $990. The monitoring service begins immediately after the equipment is delivered and installed on January 1. Required: Determine the dollars of revenue that should be allocated to the equipment for each bundled sale. Determine the dollars of revenue that should be allocated to the service for each bundled sale. Determine the dollars of Sales Revenue and Service Revenue from the January 1 bundled sale that should be reported in the income statement for the period January 1–31.

Answer 1

Particulars Amount

1. Revenue allocated to the equipment $330

for each bundled sales

{$990 * $280 / $280 + $560}

2. Revenue allocated to the service $660

for each bundled sales

{$990 * $560 / $280 + $560}

3. Sales revenue to be reported in income $660

statement

Service revenue to be reported in $55

income statement

($660/12)