Question

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.

Answer 1

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