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15 December, 08:02

Alpha Company sells prefabricated pools that cost $80,000 to customers for $154,000. The sales price includes an installation fee, which is valued at $20,000. The fair value of the pool is $140,000. The installation is considered a separate performance obligation and is expected to take 2 months to complete. The transaction price allocated to the pool and the installation is:

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  1. 15 December, 11:09
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    The correct answer is $134,750 and $19,250.

    Explanation:

    According to the scenario, computation of the given data are as follows:

    We can calculate the price allocated to the poll by using following formula:

    Price allocated to the pool = Selling price * fair value : (Fair value + Installation fees)

    = $154,000 * $140,000 : ($140,000 + $20,000)

    = $154,000 * 0.875

    = $134,750

    Now, We can calculate the price allocated to the installation by using following formula:

    Price allocated to the installation = Selling price * Installation fees : (Fair value + Installation fees)

    = $154,000 * $20,000 : ($140,000 + $20,000)

    = $154,000 * 0.125

    = $19,250
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