Chapter 5 Identifying performance obligations (1 pt.) Saved Help Save & Exit Sub

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Chapter 5 Identifying performance obligations (1 pt.) Saved Help Save & Exit Submit On March 1, 2018, Gold Examiner receives $151,000 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 $1,440 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. points 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 Book Complete this question by entering your answers in the tabs below Req 1 Req 2 to4 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 Journal entry worksheet Record the receipt of cash by Gold Examiner Note: Enter debits before credits Date General Journal DebitCredit March 01, 2018

Explanation / Answer

ans)

1) Number of performance obligations in the contract: 2.

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

2) Mar 1 2018   Cash 151000

Deferred revenue—gold bars 144960

Deferred revenue—insurance 6040

3) Mar 30, 2018 Deferred revenue—gold bars 144960

Sales revenue 144960

4)Apr 1, 2018 Deferred revenue—insurance 6040

Service revenue 6040

Explanation:

Value of the gold bars:$1,440/unit ×96 units = 138240

Stand­alone selling price of the insurance (60/unit X 96units) = 5760

Total of stand­alone prices 144000

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

Gold bars: 138240 / 138240 + 5760 = 96%

Insurance : 5760 / 138240 + 5760 = 4%

100%

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

$151000 Transaction price × 96% = $144960 Gold

$151000 Transaction price × 4% = $6040 Insurance

3)

Gold Examiner recognizes only the portion of revenue associated with passing of the legal title. Therevenue associated with insurance coverage will be earned only when that performance obligation issatisfied.

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