Use the Following Information to Answers Questions During 2014, Horn

question 91

Essay

Use the following information to answers questions During 2014, Horn Corp.started a construction job with a total contract price of $700,000.Horn has consistently used the completed contract method.The job was completed on December 15,
-Bundled sales Loon Inc., a software company sells new accounting software and user support bundled together.The fair value of the software is $1,500 and the fair value of the user support is $500. The user support is valid for a period of 12 months from the date of software purchase.To be able to compete with a competitor's offering, Loon decided to sell the bundle at a discount for $1,800. During its first month of sales, 100 units of this software bundle were sold at the discounted price, and expenses were $50,000. Instructions
a)Calculate the sale price that should be allocated to each component of the bundle using the
relative fair value method.
b)Calculate the sale price that should be allocated to each component of the bundle using the
residual value method.
c)Assuming that the relative fair value method is used and income tax rate is 30%, calculate
the net income applicable to Loon's first month of sales.

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Definitions:

Consumer Surplus

The economic benefit enjoyed by consumers when they pay less for a product than what they were prepared to pay.

Producer Surplus

The financial gap between the price sellers are willing to accept for goods or services and the price they eventually get.

Price Floor

A legal minimum on the price at which a good can be sold.

Consumer Surplus

The variation in the comprehensive amount consumers are willing to layout for a good or service and the actual layout.