On March 1, 2021, Gold Examiner receives $150,000 from a local
bank and promises to deliver 95 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 $1,520
per unit, and Gold Examiner estimates the stand-alone price of the
replacement insurance service to be $80 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.
1 | ||||
Number of performance obligations in the contract is 2. | ||||
2 to 4 | ||||
Debit | Credit | |||
March 01, 2021 | Cash | 150000 | ||
Deferred revenue—gold bars | 142500 | |||
Deferred revenue—insurance | 7500 | |||
March 30, 2021 | Deferred revenue—gold bars | 142500 | ||
Sales revenue | 142500 | |||
April 01, 2021 | Deferred revenue—insurance | 7500 | ||
Service revenue | 7500 | |||
Workings: | ||||
Value of the gold bars | 144400 | =1520*95 | ||
Standalone selling price of the insurance | 7600 | =80*95 | ||
Total of standalone prices | 152000 | |||
Allocation: | ||||
Deferred revenue—gold bars | 142500 | =150000*144400/152000 | ||
Deferred revenue—insurance | 7500 | =150000*7600/152000 |
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