Assignment Problem: Handler Company is an established manufacturer of equipment used in the construction industry. Handler has the following arrangement with Chai Company.
Chai purchases equipment from Handler for a price of $2,000,000 and chooses Handler to do the installation. Handler charges the same price for the equipment irrespective of whether it does the installation or not. (Some companies do the installation themselves because they either prefer their own employees to do the work or because or relationships with other customers). The installation service included in the arrangement is estimated to have a standalone price of $20,000.
The standalone selling price of the training session is estimated at $50,000. Other companies can also perform these services.
Chai is obligated to pay Handler the $2,000,000 upon the delivery and installation of the equipment.
Handler delivers the equipment on September 1, 2017, and completes the installation of the equipment on November 1, 2017 (transfer of control is complete). Training related to the equipment starts once the installation is completed and lasts for 1 year.
Q1. How many performance obligations are in this contract?
Q2. What is the transaction price?
Q3. What is the allocated transaction price for the equipment?
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