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On 12/30/2018, Iveco Trucks (hereafter: Iveco) entered into an agreement to sell John Deere a truck. John Deere paid the full transaction price of $150,000 in cash on 12/31/2018. Under the agreement the transaction price includes: 1) 2019 model Iveco T100 truck This is the flagship full size truck of Iveco. The standalone price of the truck is $145,000. The truck was delivered on 12/31/2018. 2) Installation service The technology in the Iveco T100 truck is overwhelming and no driver can operate the T100 without this installation service. This service is not sold by any other provider. The standalone price estimate of the installation service is $5,000. The installation service was provided on 1/1/2019. 3) Extended warranty - The warranty covers all malfunctions bumper to bumper in the truck for 5 years. The warranty was negotiated separately and can also be purchased from external insurance companies. The standalone price estimate of the warranty is $25,000. Based on Ivecos past experiences, if malfunctions occur they are distributed equally across the five years period. The warranty period starts at the day John Deere is able to operate the truck (i.e., starting at the day that the installation service is preformed). 4) Oil change services Iveco will provide for free the routine monthly oil change service to the truck for a period of 3 years. The oil service was negotiated separately. Generic servicing shops (such as Jiffy Lube) sell this service as well. The standalone price estimate of this service is $15,000. The 3 years count starts at the day that John Deere is able to operate the truck (i.e., starting at the day that the installation service is preformed). 5) Fuel Iveco will provide John Deere 1,000 gallons of premium fuel. The fuel was negotiated separately and it is the same fuel that can be bought from every gas station. The fuel was provided on 1/1/2019. The standalone price estimate of the fuel is $10,000.

Required: a. How many distinct performance obligations does the contract contain? Explain your answer and list each performance obligation. b. How much of the transaction price should be allocated to each performance obligation? c. How much revenue should Iveco recognize in 2018? d. How much revenue should Iveco recognize in 2019? e. The CEO of Iveco will receive a large bonus in 2018 if revenue increases by $50,000 relative to the revenue recognized in item (c) above. The CEO has full control over all her employees schedule on the last business day of 2018. How would you advise the CEO to reach her target?

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