On March 1, 2018, Gold Examiner receives $150,000 from a local bank and promises to deliver...

On March 1, 2018, Gold Examiner receives $150,000 from a local bank and promises to deliver 96 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 $1,560 per unit, and Gold Examiner estimates the stand-alone price of the replacement insurance service to be $65 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.

Expert Solution

1. These prices are bundled so you have to pro rate them for the new bundle price. [(150,000) / (96*1560+96*65)]* performance obligation price.

New price of gold sales = [(150,000) / (96*1560+96*65)]* 96*1560 = [(150,000) / (156000)]*149760 = $144,000

New price of Warranty = [(150,000) / (156000)]*6240 = $12,000

2. to 4.

March 01, 2018:

Cash A/C Dr. $ 156,000
To Deferred revenue—insurance A/C $ 12,000
To Deferred revenue—gold bars A/C $ 144,000

March 30, 2018

Deferred revenue—gold bars A/C Dr. $ 144,000
To Sales revenue A/C $144,000

April 01, 2018

Deferred revenue—insurance A/C Dr. $12,000
To Service revenue A/C $12,000

ekkarill92 answered 1 year ago

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