Question

On january 1, 2019, quenneville corporation sold equipment to wirtz, inc., for $500,000. the equipment had cost $300,000 to manufacture. the contract with wirtz requires quenneville to provide complete maintenance and repair services on the equipment for 5 years. quenneville's cost to provide the services are $10,000 per year.

Answer 1

Answer:

1. Total revenue recognized in 2019 is $428,000.

2. Earnings before tax in 2019 is $118,000.

Explanation:

The missing question are as follows

"Quenneville sells the 5-year maintenance and repair services contracts separately for $90,000. Quenneville uses the residual approach to allocate the $500,000 transaction price between the two performance obligations: delivery of the equipment and the maintenance and repair services.

1. What amount of revenue does Quenneville report in 2019

2. What amount of earning before tax does Quenneville report in 2019"

Solution

1. Calculation of the total revenue recognized in 2019

       Particulars                                                Amount

Standalone selling price for equipment        $410,000

($500,000 - $90,000)

Add: Standalone selling price of 5 years       $18,000

maintenance and repair contract

($90,000 / 5 years)

Total revenue recognized in 2019                $428,000

2.  Calculation of earnings before tax in 2019

     Particular                                           Amount

Total revenue recognized in 2019        $428,000

Less: Total expenses                              $310,000

($300,000 + $10,000)

Earning before tax in 2019                    $118,000