Question

Neakanie Industries sells specialized mountain bikes. Each specialized bike purchased includes free maintenance service for 12 months. The price of the specialized bike is $1,400. When sold separately, a maintenance contract is $600 and a comparable but non-specialized bike is $1,000. What amount of revenue will Neakanie recognize at the date of sale for each bike?

Answer 1

$875 is the amount of revenue that will be recognized.

Explanation:

Entire price for specialized bike will be appropriated in the ratio of individual prices of the non- specialized bikes and the maintenance contract.

The following calculation is made to calculate the revenue from the sale of a bike:

= 1400 multiply with  (1000 divide by 1600)

After solving the above equation we get,

= $875  will be recognized by Neakanie at the date of sale.

Hence, the correct option will be with an amount of $875

Note: a maintenance contract is $600 and a comparable but non-specialized bike is $1,000 when added sums to $1600 amount.