Question

Fit & Slim (F&S) is a health club that offers members various gym services.

Required:
1. Assume F&S offers a deal whereby enrolling in a new membership for $1,400 provides a year of unlimited access to facilities and also entitles the member to receive a voucher redeemable for 30% off yoga classes for one year. The yoga classes are offered to gym members as well as to the general public. A new membership normally sells for $1,455, and a one-year enrollment in yoga classes sells for an additional $450. F&S estimates that approximately 50% of the vouchers will be redeemed. F&S offers a 10% discount on all one-year enrollments in classes as part of its normal promotion strategy.

1. a. & b. Indicate below whether each item is a separate performance obligation. For each separate performance obligation you have indicated, allocate a portion of the contract price.
c. Prepare the journal entry to recognize revenue for the sale of a new membership.

2. Assume F&S offers a “Fit 80” coupon book with 80 prepaid visits over the next year. F&S has learned that Fit 80 purchasers make an average of 70 visits before the coupon book expires. A customer purchases a Fit 80 book by paying $450 in advance, and for any additional visits over 80 during the year after the book is purchased, the customer can pay a $15 visitation fee per visit. F&S typically charges $15 to nonmembers who use the facilities for a single day.

a. & b. Indicate below whether each item is a separate performance obligation. For each separate performance obligation you have indicated, allocate a portion of the contract price.
c. Prepare the journal entry to recognize revenue for the sale of a new Fit 80 book.

Complete this question by entering your answers in the tabs below. Req 1A and 1B Req 1C Req 2A and 2B Req 2c Indicate below w

Reg 1A and 1B Req 1C Reg 2A and 2B Req 20 Prepare the journal entry to recognize revenue for the sale of a new membership. (I

Complete this question by entering your answers in the tabs below. Req 1A and 1B Req 1C Req 2A and 2B Req 20 Indicate below w

Req 1A and 1B Req 1C Reg 2A and 2B Req 20 Prepare the journal entry to recognize revenue for the sale of a new Fit 80 book. (

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Answer #1

1. Offer price = $1400 , voucher discount =30% , New membership = $1,455. , yoga classes = $450 , Voucher redemption = 50% , Normal  discount =10%

1(a)

Particulars performance obligation Stand alone price percentage to total price
Yoga discount voucher yes

$450*50%*20%=$45

3%
Facility access $1,455 97%
Total price $1500

1(b)

Particulars Transaction price Contract price % to total price  
Yoga discount voucher $1400 $1400*3%=$42 3%
Gym membership $1400 $1400*97%=$1358 97%
Total price $1400

1(c) Journal entry to recognize revenue for sale of new membership

Particulars Debit Credit
Cash $1400
Deferred revenue (membership fee) $1358
Deferred revenue (Yoga coupon) $42

2(a) & (b)

There is only 1 performance obligation in FIT 40 member . This performance obligation is right of entry of F&S for 80 prepaid visits.

Right of entry to gym is distinct and identifiable from other services hence treated as separate. Price doesnot change so choice for supplementary visits is not relevant. Therefore it is not performance obligation.

It was not required to assign contract price to additional visits as there is only 1 performance obligation.

Coupon book consist of 80 visits. Contract price to each visit 80*15 = $1200

2(c) Journal entry to recognize revenue for the sale of a new Fit 80 book.

Particulars Debit Credit
Cash $450
Deferred revenue (membership fee) $450
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