On March 1, 2018, Gold Exarniner receives $153,000 from a local bank and promise

Question

On March 1, 2018, Gold Exarniner receives $153,000 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-a insurance service to be $77 per unit. Brink's picked up the gold bars from Gold Examiner on March 30, and delivery to the bank occurred on April 1 alone price of a gold bar is $1,463 per unit, and Gold Examiner estimates the stand-alone price of the replacement Required 1. How mariy 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 Complete this question by entering your answers in the tabs below. Req 1 Req 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.) View transaction list View journal entry worksheet Debit Credit Date General Journal No 153,000 1 March 01, 2018 Cash

Explanation / Answer

SOLUTION

1. Number of performance obligations in the contract - 2

Delivery of gold is one performance obligation. The additional insurance is a second performance obligation. The insurance service is capable of being distinct because the bank could choose to receive similar services from another insurance provider, and it is separately identifiable, as it is not highly interrelated with the other performance obligation of delivering gold, and the seller's role is not to integrate and customize them to create one service or product. So, the insurance qualifies as a performance obligation. The receipt of cash prior to delivery is not a performance obligation, but rather gives rise to deferred revenue associated with performance obligations to be satisfied in the future.

2 to 4

* 2.

Gold Examiner first identifies each performance obligation’s share of the sum of the stand­alone selling prices of all deliverables:

Gold bars: - $146,300 / ($146,300 + $7,700) = 95%

Insurance: - $7,700 / ($146,300 + $7,700) = 5%

Gold Examiner then allocates the total selling price based on stand­alone selling prices, as follows:

Gold - $153,000 Transaction price * 95% = $145,350

Insurance - $153,000 Transaction price * 5% = $7,650

Date Account titles and Explanation Debit ($) Credit ($) March 01 Cash 153,000   Deferred revenue - gold bars 145,350   Deferred revenue - insurance 7,650 March 30 Deferred revenue - gold bar 145,350 Sales revenue 145,350 Apirl 01 Deferred revenue - insurance 7,650 Service revenue 7,650

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.