Dexter purchases equipment from Ray Company for a price of $5,000,000 and chooses Ray to do the installation. Ray doesn't charge for the installation of equipment. The price of the installation service is estimated to have a fair value of $60,000. Assuming the transaction to be multiple-deliverable arrangement, compute the amount to be allocated to installation.
A) $59,289
B) $60,720
C) $60,000
D) $61,457

Question

Quizplus · Accepted Answer

The total fair value of the transaction is $5,060,000 ($5,000,000 for equipment + $60,000 for installation). The allocation for installation is calculated as ($60,000 / $5,060,000) * $5,000,000 = $59,289.

Dexter Purchases Equipment from Ray Company for a Price of $5,000,000