Check your answer
Write your response and explain your reasoning.
Fictional Northstar Controls sells the same device separately for $100,000 to similar customers in the same region. Installation is not sold separately. A controlled cost forecast is $16,000, and a 25 percent margin is appropriate. Those inputs support a $20,000 installation SSP. Adjusted sales support a $30,000 SSP for the support package. The supplied transaction price is $126,000. Invoice lines are $110,000 for the device, zero for installation, and $16,000 for support. The facts provide no evidence that the discount or a variable amount belongs to selected obligations.
Prepare the SSP evidence hierarchy, allocation table, and exception checklist. Show each ratio and allocation, reconcile the total, and state what the calculation cannot establish.
Use ASC 606-10-32-31 through 32-36 for SSP evidence and the ordinary allocation rules. Use 32-37 through 32-41 to explain why an exception needs evidence.
Compare your reasoning with the worked answer
The device's comparable separate sales provide observable SSP evidence of $100,000. Installation uses a $16,000 expected cost and adds the appropriate 25 percent margin, which produces $20,000. Adjusted support sales provide a $30,000 SSP. Total SSP is $150,000.
The ratios are 66.6667 percent for the device, 13.3333 percent for installation, and 20 percent for support. Applying them to the $126,000 transaction price gives allocations of $84,000, $16,800, and $25,200. The amounts reconcile to $126,000. The $24,000 bundle discount is allocated in those proportions because the facts supply no evidence for an exception.
The invoice lines do not establish SSP or allocation. The schedule also does not identify the obligations, validate the transaction price, support the SSP evidence, or determine when revenue is recognized.