Exercise 5-3 Allocating transaction price [LO5-4] Video Planet (\"VP\") sells a

Question

Exercise 5-3 Allocating transaction price [LO5-4] Video Planet ("VP") sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer's home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $2,465, sells the remote separately for $145, and offers the installation service separately for $290. The entire package sells for $2,800. Required How much revenue would be allocated to the TV, the remote, and the installation service? Item Description Allocated Revenue TV Remote Installation Total revenue

Explanation / Answer

Ratio = Amount to be allocated 60 inch TV 2,465 2465/2900 0.85 2,800 2380 Remote 145 145/2900 0.05 2,800 140 installation service 290 290/2900 0.1 2,800 280 total 2,900 2800 Allocated revenue 60 inch TV 2,380 Remote 140 installation service 280 Total revenue 2,800

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