Question

In: Accounting

On March 1, 2018, Gold Examiner receives $149,000 from a local bank and promises to deliver...

On March 1, 2018, Gold Examiner receives $149,000 from a local bank and promises to deliver 94 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. Prepare the journal entry Gold Examiner would record on March 1, March 30 and April 1.

(1Record the receipt of cash by Gold Examiner March 01, 2018,

2.Record any necessary entry when Brink's has picked up the gold bars from Gold Examiner March 30, 2018

3. Record any necessary entry upon delivery of the gold bars to the bank. April 01, 2018)

Solutions

Expert Solution

1
Number of performance obligations in the contract is 2.
2
General Journal Debit Credit
March 01, 2018 Cash 149000
     Deferred revenue—gold bars 140060
     Deferred revenue—insurance 8940
March 30, 2018 Deferred revenue—gold bars 140060
        Sales revenue 140060
April 01, 2018 Deferred revenue—insurance 8940
       Service revenue 8940
Workings:
Value of the gold bars 132540 =1410*94
Stand­alone selling price of the insurance 8460 =90*94
Total of stand­alone prices 141000
Allocation:
Deferred revenue—gold bars 140060 =149000*132540/141000
Deferred revenue—insurance 8940 =149000*8460/141000

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