282 SECTION 1 The Role of Accounting as an Information System Required: How much revenue would be allocated to the TV, the remote, and the installation service? Access the FASB Standards Codification at the FASB website ( asc.fasb.org ). Required: Determine the specific citation for accounting for each of the following items: 1. On what basis is a contract’s transaction price allocated to its performance obligations? 2. What are indicators that a promised good or service is separately identifiable from other goods and services promised in the contract? 3. Under what circumstances is an option viewed as a performance obligation? On March 1, 2016, Gold Examiner receives $147,000 from a local bank and promises to deliver 100 units of certified 1-oz. gold bars on a future date. The contract states that ownership passes to the bank when Gold Examiner delivers the products to Brink’s, a third-party carrier. In addition, Gold Examiner has agreed to provide a replacement shipment at no additional cost if the product is lost in transit. The stand-alone price of a gold bar is $1,440 per unit, and Gold Examiner estimates the stand-alone price of the replacement insurance service to be $60 per unit. Brink’s picked up the gold bars from Gold Examiner on March 30, and delivery to the bank occurred on April 1. Required: 1. How many performance obligations are in this contract? 2. Prepare the journal entry Gold Examiner would record on March 1. 3. Prepare the journal entry Gold Examiner would record on March 30. 4. Prepare the journal entry Gold Examiner would record on April 1. Clarks Inc., a shoe retailer, sells boots in different styles. In early November the company starts selling “Sun- Boots” to customers for $70 per pair. When a customer purchases a pair of SunBoots, Clarks also gives the customer a 30% discount coupon for any additional future purchases made in the next 30 days. Customers can’t obtain the discount coupon otherwise. Clarks anticipates that approximately 20% of customers will utilize the coupon, and that on average those customers will purchase additional goods that normally sell for $100. Required: 1. How many performance obligations are in a contract to buy a pair of SunBoots? 2. Prepare a journal entry to record revenue for the sale of 1,000 pairs of SunBoots, assuming that Clarks uses the residual method to estimate the stand-alone selling price of SunBoots sold without the discount coupon. A New York City daily newspaper called “Manhattan Today” charges an annual subscription fee of $135. Customers prepay their subscriptions and receive 260 issues over the year. To attract more subscribers, the company offered new subscribers the ability to pay $130 for an annual subscription that also would include a coupon to receive a 40% discount on a one-hour ride through Central Park in a horse-drawn carriage. The list price of a carriage ride is $125 per hour. The company estimates that approximately 30% of the coupons will be redeemed. Required: 1. How much revenue should Manhattan Today recognize upon receipt of the $130 subscription price? 2. How many performance obligations exist in this contract? 3. Prepare the journal entry to recognize sale of 10 new subscriptions, clearly identifying the revenue or deferred revenue associated with each performance obligation. On May 1, 2016, Meta Computer, Inc., enters into a contract to sell 5,000 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $95,000, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2016. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $20,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.60 per unit. Required: 1. How many performance obligations are in this contract? 2. Prepare the journal entry that Meta would record on May 1, 2016. 3. Assume the same facts and circumstances as above, except that Meta gives a 5% discount option to Bionics instead of 25%. In this case, what journal entry would Meta record on May 1, 2016? E 5–4 FASB codification research ● LO5–4, LO5–5 CODE E 5–5 Performance obligations ● LO5–2, LO5–4, LO5–5 E 5–6 Performance obligations; customer option for additional goods or services ● LO5–2, LO5–4, LO5–5 E 5–7 Performance obligations; customer option for additional goods or services; prepayment ● LO5–3, LO5–4, LO5–5 E 5–8 Performance obligations; customer option for additional goods or services ● LO5–4, LO5–5
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