Question

TreeHold Corp. designs and builds custom harvesting equipment for logging companies across Canada. The company, which is publicly traded, has a May 31 year end.

On February 18, 2020, TreeHold signed a contract with Coastal Harvesting Ltd. to design and build 25 custom harvesters that can harvest wood at the steep grades found along much of the Pacific coast timber stands included in Coastal’s harvesting leases. The following events took place in 2020 in relation to the contract:

1. February 18: Officials from TreeHold and Coastal sign the contract. The contract was for $3,848,000. TreeHold is to design, manufacture, and deliver the 25 machines to Coastal’s operations centre in Duncan, British Columbia. TreeHold’s management estimates that the design component of the contract would be valued at $478,329 if contracted for separately, while the machine construction component of the contract would be valued at $3,754,671 if the machines were purchased separately. TreeHold agrees to provide a three-year assurance-type warranty for the machines, and the company’s management estimates that the warranty claims would total $251,000 based on past experience. Coastal agrees to pay a $1,286,000 deposit within 10 days of signing the contract and to pay the balance within 15 days of the equipment being delivered.

2. February 25: Coastal pays the deposit specified in the contract.

3. March 28: TreeHold’s engineering staff complete the equipment design and it is approved by officials from Coastal.

4. May 18: TreeHold completes construction of the 25 harvesters.

5. May 20: The 25 harvesters are loaded onto TreeHold’s trucks and are delivered to Coastal’s operation centre in Duncan later that day. 6. June 2: Coastal pays the balance owing on the contract.

Determine when and how much revenue TreeHold would be able to recognize for the year ended May 31, 2020. (Round allocation percentage to 1 decimal place, e.g. 15.2% and final answers to O decimal places, e.g. 125.) Revenue recognized on March 28, 2020 $ 411736 Revenue recognized on May 20, 2020 $ ta 3220776

Answer 1

Performance Obligation	Standalone Price	Percent of Total Standalone Price	Allocated Transaction Price
Design	478329	11.3%	434824
Manufacture and deliver	3754671	88.7%	3413176
Total	4233000	100.0%	3848000

An assurance type warranty is not a separate performance obligation and hence no transaction price is allocated to it.

TreeHold would recognize revenue as under:

Revenue recognized on	March 28, 2020	434824
Revenue recognized on	May 20, 2020	3413176

Thus, for the year ended May 31, 2020, TreeHold would be able to recognize revenue of $3848000.