Question 4: Revenue Recognition
BHVAC Corporation manufactures and installs split-level air conditioning units. These units are used in
residential homes. Each unit has a retail price of $7,500. The cost to BHVAC is $4,000.
BHVAC sells its products under a written contract, which indicates the customer's and BHVAC's rights and
obligations on the sale of each unit (collection on the contract is proable). BHVAC sells its appliances
on a standalone basis directly to customers, as well as provides installation services. Installation
services are not specialized and customers could hire other vendors for these services.
BHVAC sold 50 units with installation service to a real estate developer of gated communities for $300,000.
BHVAC will provide installation services at a standalone selling price of $2,500 per unit.
Its costs BHVAC $1,000 to install each unit.
The units were delivered on December 20th, 2023, and installation was completed on February 10th 2024.
Full payment was made to BHVAC at delivery of the appliances.
Requrements:
a Evaluate each of the five steps in the revenue recognition process for this revenue arrangement for BHVA
The sale of the appliance and their installation are accounted for as separate performance obligations.
b Prepare journal entries for BHVAC on December 20th, 2023 and February 10, 2024.
c How is BHVAC's 2023 Balance Sheet affected by this arrangement?