Question

Panarin Company entered into two contracts on the same date with Hjalmarsson Corporation. Pana has provided the following analysis of price and cost for the contracts: Hjalmarsson, the customer, may cancel both contracts if either of them is not fulfilled by Panarin in a timely manner. Stand-alone prices are typically $120,000 for the goods in Contract A and $80,000 for the goods in Contract B.
Required:
1. Should the two contracts be combined for purposes of applying the 5-step revenue recognition model?
2. What amount of revenue should Panarin associate with each of the contracts?
3. When should revenue be recognized on each of the contracts?

Answer 1

Here are some missing parts of your question.

contract price for a = 125,000, for b = 80,000

cost of related goods for a = 70,000 for b = 55,000

Explanation:

1. Both contracts should be combined  for the the purpose of applying this model. so the answer is yes

2.

120000 + (5000 x 60%)

= 120000 + 3000

= $123000

80000  (5000 x 40%)

= 80000 + 2000

= $82000

from the question we were told that prices for Contract A is $120,000 while prices for Contract B is $80,000. the Contract price of Contract A put  to be $125,000. so we have $5,000 more that should be shared between the contracts a and b. so the obligations for goods from A is calculated to be  $123,000 and tht of contract B is $82,000.

c.

when control of goods is shifted to customer then the revenue has to be recognized