Question

Required:
1. Assume F&S offers a deal whereby enrolling in a new membership for $1,000 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 $1,140, and a one-year enrollment in yoga classes sells for an additional $600. 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 $600 in advance, and for any additional visits over 80 during the year after the book is purchased, the customer can pay a $10 visitation fee per visit. F&S typically charges $10 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.

Answer 1

SOLUTION:-

Given data -

Offer price = $1,000

Voucher Discount = 30%

Yoga Classes = $600

New Membership = $1,140

Vouchers redeemed = 50%

Normal Discount = 10%

(1)( a)

Item Description	Performance Obligation ?	Stand alone Price	Percentage to Total price
Yoga Discount Voucher	Yes	$30	3%
facilities access	$1,140	97%
Total stand alone price	$1,170

Yoga discount voucher stand alone price = 600 x 50% x 10%

= $30

Yoga discount voucher % to total price = 30/1170 x 100 = 2.56% (rounded off = 3%)

Facilities access % to total price = 1140/1170 x 100 = 97.44% (rounded off = 97%)

(1) (b)

Item Description	Percentage to Total price	Transaction price	Allocated contract price
Yoga Discount voucher	3.00%	$1,000	$30
Gym membership	97.00%	$1,000	$970
Total price			$1,000

Yoga discount voucher allocated contract price = 1,000 x 3%

= $ 30

Gym membership allocated contract price = 1,000 x 97%

= $970

(1) (c ) Journal entry to record revenue recozination for the sale of New membership:-

Account File	Debit	Credit
Cash	$1,000	-
Deferred revenue -membership fee	-	$970
Deferred revenue- Yoga coupon	-	$30

(2) (a & b) There is only one performance obligation in Fit 80 member deal.The FIt 80 coupon book is a material right to right of the gym entry .Therefore this performance obligation is right of entry of F& S 70 prepaid visits .

The right of entry of gym for 70 prepad visits is separate beacuse it is both able of being distinct and separately identifiable from other goods or services in contract. The price is the same as non member , so the choice for supplementary visits over 70 is not significant. Therefore ,it is not a performance obligation in this deal.

Since there is one performance obligation in this deal .It is not required to assign the contract priceto option of additional visits.However , since the coupon book comprises 70 visits ,we should assign total $700 contract price to each visit (10 x 70 = $700)

(2) (c) Journal entry to record revnue recogzine for sale of New FIt 80 book

Account File	Debit	Credit
Cash	$600	-
Deferred revenue- membership fee	-	$600