Fancy Cars sold a used car for $35,000 cash.The company will also provide 4 oil changes per year for 5 years and an extended service-type warranty for 5 years.This is the first time that Fancy has offered an extended warranty.They intend to offer it to customers on a stand-alone basis but have not yet established a sales price.The observable selling prices of the car and oil changes follow:

a.Determine how revenue should be allocated to the various components in this transaction.
b.Apply the appropriate revenue recognition criteria to determine when revenue should be recognized for the various components of this transaction.

Question

Fancy Cars sold a used car for $35,000 cash.The company will also provide 4 oil changes per year for 5 years and an extended service-type warranty for 5 years.This is the first time that Fancy has offered an extended warranty.They intend to offer it to customers on a stand-alone basis but have not yet established a sales price.The observable selling prices of the car and oil changes follow:
  
a.Determine how revenue should be allocated to the various components in this transaction.
b.Apply the appropriate revenue recognition criteria to determine when revenue should be recognized for the various components of this transaction.

Quizplus · Accepted Answer

The Answer of Fancy Cars sold a used car for $35,000 cash.The company will also provide 4 oil changes per year for 5 years and an extended service-type warranty for 5 years.This is the first time that Fancy has offered an extended warranty.They intend to offer it to customers on a stand-alone basis but have not yet established a sales price.The observable selling prices of the car and oil changes follow:
  
a.Determine how revenue should be allocated to the various components in this transaction.
b.Apply the appropriate revenue recognition criteria to determine when revenue should be recognized for the various components of this transaction.

Fancy Cars Sold a Used Car for $35,000 Cash