Sam Baker enters into a contract with Pit Company to purchase a gas fireplace unit. The sale agreement is for a total price of $ 3,000 and includes delivery of the unit, installation, and a two-year warranty. Installation successfully occurred on November 1, 2021. Pit Company often sells this gas fireplace for $ 2,500 and offers installation and warranty services at $ 500 and $ 300, respectively. Using the stand-alone fair values, what amount would be recorded as revenue on November 1, 2021 under the contract-based approach to revenue recognition? Round to the nearest whole dollar.
A) $ 2,727
B) $ 2,500
C) $ 2,273
D) $ 3,000

Question

Quizplus · Accepted Answer

The total transaction price of $3,000 is allocated based on the stand-alone selling prices: $2,500 for the fireplace, $500 for installation, and $300 for the warranty. The revenue for the fireplace and installation ($2,500 + $500 = $3,000) is recognized on November 1, 2021, as these obligations are satisfied. The warranty is a separate performance obligation recognized over time.

Sam Baker Enters into a Contract with Pit Company to Purchase