Alpha Company sells prefabricated pools that cost $80,000 to customers for $154,000. The sales price includes an installation fee, which is valued at $20,000. The fair value of the pool is $140,000. The installation is considered a separate performance obligation and is expected to take 2 months to complete. The transaction price allocated to the pool and the installation is:

The correct answer is $134,750 and $19,250.

Explanation:

According to the scenario, computation of the given data are as follows:

We can calculate the price allocated to the poll by using following formula:

Price allocated to the pool = Selling price × fair value ÷ ( Fair value + Installation fees)

= $154,000 × $140,000 ÷ ( $140,000 + $20,000)

= $154,000 × 0.875

= $134,750

Now, We can calculate the price allocated to the installation by using following formula:

Price allocated to the installation = Selling price × Installation fees ÷ ( Fair value + Installation fees)

= $154,000 × $20,000 ÷ ( $140,000 + $20,000)

= $154,000 × 0.125

= $19,250