On March 1, 2016, Gold Examiner receives $162,000 from a local bank and promises

Question

On March 1, 2016, Gold Examiner receives $162,000 from a local bank and promises to deliver 96 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 $1,680 per unit, and Gold Examiner estimates the stand-alone price of the replacement insurance service to be $70 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. to 4. Prepare the journal entry Gold Examiner would record on March 1, March 30 and April 1. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Answer:1 These prices are bundled so you have to pro rate them for the new bundle price. [(162,000) / (161280+6,720)]* performance obligation price.

New price of gold sales = (162/168)* 161280 = $155,520

New price of Warranty = (162/168)*6,720 = $6480

Answer: Journal entry:

March 01, 2016:

Cash A/C Dr. $ 162,000
     To Deferred revenue—insurance A/C    $ 6,480
     To Deferred revenue—gold bars A/C $ 155,520

March 30, 2016

Deferred revenue—gold bars A/C Dr. $ 155,520
      To Sales revenue A/C                             $155,520

Apirl 01, 2016

Deferred revenue—insurance A/C Dr. $ 6,480
          To Service revenue A/C $ 6,480

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