Question

On March 1, 2021, Gold Examiner recelves $165,000 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 $1,410 per unit, and Gold Examiner estimates the stand-alone price of the replacement Insurance service to be $90 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. Complete this question by entering your answers in the tabs below. Req1 Req 2 to 4 How many performance obligations are in this contract? Number of performance obligations Reg 2 to 4 >

Answer 1

Requirement 1

There are two performance obligations viz. delivery of gold and additional insurance. The insurance service is separately recognized as the bank is able to receive similar services from another insurance provider. So, it is identified separately as it is not closely related to delivery of gold. Hence, insurance qualifies as performance obligation. The receipt of cash is not performance obligation as it appropriates in creation of deferred revenue.

Requirement 2 to 4

New price of gold             = (1410*100) * [165000/{(1410*100)+90*100}]

                                                = 141,000 * 165,000/150,000

                                                = $ 155,100

New price of warranty = (90*100) *[165000/{(1410*100)+90*100}]

                                                = 9000 * 165,000/150,000

                                                = $ 9,900

The required journal entries would be

Date	Particulars	Debit ($)	Credit ($)
Mar 01, 2021	Cash	165,000
	Unearned sales revenue		155,100
	Unearned warranty revenue		9,900
	(To record receipt of cash by gold examiner)
Mar 30,2021	Unearned sales revenue	155,100
	Sales revenue		155,100
	(To record fulfilment of performance obligation)
April 30,2021	Unearned warranty revenue	9,900
	Warranty revenue		9,900
	(To record entry on delivery)

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