Diversified Industries manufactures sump-pumps. Its most popular product is called the Super Soaker, which costs $650 to manufacture and $200 to install. Diversified sells the Super Soaker directly to commercial customers for $1,300 a unit and will install the unit for an additional $250. Although the Super Soaker is its main source of revenue, Diversified also provides monthly maintenance services for the convenience of its customers, for an additional fee. Diversified outsources maintenance services at a cost of $8 an hour. Diversified also sells the Super Soaker to home improvement retailers for $1,100 a unit. Diversified had the following Super Soaker revenue arrangements during the first quarter of 20Y1:
Arrangement A: Diversified sold 40 Super Soakers to a major business in a flood-prone area for a negotiated contract price of $60,000. The Super Soakers are delivered and installed on February 1, 20Y1, and full payment is made. Diversified agreed to include installation and a 3-year monthly maintenance service in the contract price, in addition to the pumps. Diversified typically charges $15 per month per unit for the maintenance plan. The contractor spends 1 hour/month maintaining each unit.
Arrangement B: On March 25, Diversified delivered 400 Super Soakers to Lowe’s and received payment in full upon delivery. To encourage sales, Diversified offers Lowe’s customers a $150 mail-in rebate. Historically, similar rebates had a 50% redemption rate. By March 31, Diversified has not received any rebates. Diversified uses the expected value method
Create T-accounts for each arrangement
Arrangement A: Uses only 2 T-accounts for Assets, 1 t-account for liabilities, and 5 t-accounts for equity.
Arrangement B: Uses 2 T-accounts for Assets, 1 t-account for liabilities and 2 t-accounts for equity