Question

Fit & Slim (F&S) is a health club that offers members various gym services.

Required:
1. Assume F&S offers a deal whereby enrolling in a new membership for $1,300 provides a year of unlimited access to facilities and also entitles the member to receive a voucher redeemable for 20% 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 $1,470, and a one-year enrollment in yoga classes sells for an additional $750. F&S estimates that approximately 40% 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.
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 60” coupon book with 60 prepaid visits over the next year. F&S has learned that Fit 60 purchasers make an average of 50 visits before the coupon book expires. A customer purchases a Fit 60 book by paying $750 in advance, and for any additional visits over 60 during the year after the book is purchased, the customer can pay a $15 visitation fee per visit. F&S typically charges $15 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 60 book.

Req 1A and 1B

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.

	Item Description Performance Obligations? Stand Alone Prices Percentage of Total Stand Alone Prices Yoga discount voucher Gym membership Total stand alone price Item Description Percentage of Total Stand Alone Price Total Transaction Price Allocated Contract Price Yoga discount voucher Gym membership Total contract price

Req 1C

• Record the revenue for the sale of a new membership.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 1

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.

Req 2A and 2B

• Record the revenue for the sale of a new Fit 60 book.

Note: Enter debits before credits.

	Item description Performance Obligations? Stand Alone Prices Percentage of Total Stand Alone Prices Fit 60 Additional gym visits Total stand alone price Item description Percentage of Total Stand Alone Price Total Transaction Price Allocated Contract Price Fit 60 Additional gym visits Total contract price

• 
  Record the revenue for the sale of a new Fit 60 book.

Note: Enter debits before credits.

Req 2C

	Transaction General Journal Debit Credit 1

Answer 1

QUES 1

a.There are two performance obligations in the new member deal. One is unlimited access to facilities and classes for one year. Another is the discount for one year yoga classes. The discount is an option for additional services, it is considered as a performance obligation because it provides a material right to the customer that the customer would not receive otherwise. The discount is distinct because it is both: 1. Capable of being distinct. 2. Separately identifiable from other goods or services in the contract.

b. Stand-alone selling price of gym membership is 1470. Because the actual value of yoga discount is 10% (20%-10%), the value should be 10% x $750= $75. There is 40% CHANCE of yoga discount will be redeemed. Therefore, stand-alone selling price of yoga discount option is $30 ($75 x 40%). Total of stand-alone prices is $1500 ($1470+$30). Yoga discount voucher% = $30/$1500 = 2% Gym membership%   = $1470/$1500 = 98%                                                                             100% Therefore, the contract price would be allocated to each performance obligation as:    Total contract price = $1300 Yoga discount price = $1300 x 2% = $26 Gym membership price = $1300 x 98% = $1274

c.

Journal entry:

cash

1300

deferred revenue-gym membership

1274

deferred revenue-yoga discount

26

ques 2

a. There is only one performance obligation in the Fit 60 member deal. This performance obligation is the access of F&S for 60 prepaid visits. The reason is that the Fit 60 coupon book is a material right to access of the gym. The access of the gym for 60 prepaid visits is distinct because it is both: 1. Capable of being distinct. 2. Separately identifiable from other goods or services in the contract. The option for additional visits, which is $15, is not a material right because the price is the same as nonmembers. Therefore, it is not a performance obligation in this deal.

b. Since there is only one performance obligation in this deal, we don’t need to allocate the contract price to option of additional visits. However, since the coupon book includes 60 visits, we should allocate the entire $750 contract price to each visit.

c.

Journal entry:

cash

750

deferred revenue-coupon book

750

Ques1
Item Description	Performance Obligations?		Stand Alone Prices		Percentage of Total Stand Alone Prices
Yoga discount voucher	yes		30		2%
Gym membership	yes		1470		98%
Total stand alone price			1500		100%
Item Description	Percentage of Total Stand Alone Price		Total Transaction Price		Allocated Contract Price
Yoga discount voucher	2%		1300		26
Gym membership	98%		1300		1274
Total contract price	100%				1300
Journal entry:
cash	1300
deferred revenue-gym membership		1274
deferred revenue-yoga discount		26
Ques 2
Item description	Performance Obligations?		Stand Alone Prices		Percentage of Total Stand Alone Prices
Fit 60	yes		750		100%
Additional gym visits	no		0		0%
Total stand alone price			750		100%
Item description	Percentage of Total Stand Alone Price		Total Transaction Price		Allocated Contract Price
Fit 60	100%		750		750
Additional gym visits	0%				0
Total contract price	100%				750