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Panarin Company entered into two contracts on the same date with Hjalmarsson Corporation

Panarin Company entered into two contracts on the same date with Hjalmarsson Corporation. Panarin has provided the following analysis of price and cost for the contracts:

 Contract AContract BContract price$125,000 $80,000 Cost of related goods 70,000  55,000 Gross profit (loss)$55,000 $25,000 

Hjalmarsson, the customer, may cancel both contracts if either of them is not fulfilled by Panarin in a timely manner. Stand-alone prices are typically $120,000 for the goods in Contract A and $80,000 for the goods in Contract B.

Required:

  1. Should the two contracts be combined for purposes of applying the five-step revenue recognition model?
  2. What amount of revenue should Panarin associate with each of the contracts?
  3. When should revenue be recognized on each of the contracts?

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