Periwinkle Company manufactures equipment. Periwinkle's products range form simple automated machinery to complex systems containing numerous...

Periwinkle Company manufactures equipment. Periwinkle's products range form

simple automated machinery to complex systems containing numerous

components. Unit selling prices range from $140,000 to $1,200,000 and are quoted

inclusive of installation. The installation process does NOT involve changes to the

features of the equipment to perform specifications. Periwinkle has the following

relationship with Rose Inc.

• Rose can purchase equipment from Periwinkle for a price of $200,000 and

contracts with Periwinkle to install the equipment. Using market data, Rose

determines installation service is estimated to have a fair value of $20,000. The

cost of the equipment is $78,000.

• Rose is obligated to pay Periwinkle the $200,000 upon delivery and installation

of the equipment.

Periwinkle delivers the equipment on August 1, 2017, and completes the installation

of the equipment on October 1, 2017. The equipment has a useful life of 7 years.

Assume the equipment and the installations are two distinct performance

obligations that should be accounted for separately.

Required:

a) How should the transaction price of $200,000 be allocated among the service

obligations?

b) Prepare the journal entries for Periwinkle for this revenue arrangement for

2017, assuming Periwinkle receives payment when installation is completed