In: Accounting
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)
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 |