- Appliances R Us sells home appliances and provides installation and service for its customers. A customer purchased a dishwasher that Appliances R Us normally sells for $1,000. In addition, the customer purchased the installation service and 3-year service contract, with stand-alone selling prices of $200 and $400, respectively. Because the customer purchased all three items as a bundle, Appliances R Us charged the customer $1,400.
Required:
a. How should the transaction price be allocated among the products? Show your computations.
b. What would be the journal entry to record revenue at the time of the sale assuming the customer pays the $1,400 at the time of the transaction?
- Revenue for a company is recognized for accounting purposes when the customer obtains control over the good or service. In some situations, revenue is recognized at a point in time; in other cases, accountants recognize revenue over time.
Required:
a. Explain when it would be appropriate to recognize revenue over time as opposed to a point in time.
b. How would a seller determine if a customer has obtained control over a good or service?
Sample Solution