Exercise 5-5 Performance obligations [L05-2, 5-4, 5.5] On March 1, 2018, Gold Ex
ID: 2569107 • Letter: E
Question
Exercise 5-5 Performance obligations [L05-2, 5-4, 5.5] On March 1, 2018, Gold Examiner receives $153,000 from a local bank and promises to deliver 100 units of certified 1-oz. gold bars orn 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 $1,463 per unit, and Gold Examiner estimates the stand-alone price of the replacement insurance service to be $77 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. Complete this question by entering your answers in the tabs below Req1Req 2 to 4 How many performance obligations are in this contract? Number of performance obligationsExplanation / Answer
REQ 1
Number of performance obligations - 2
(Delivery of gold and the additional insurance are two performance obligations)
REQ 2
Value of the gold bars: 1463*100 = 146300
Standalone selling price of the insurance: 77*100
Gold Examiner first identifies each performance obligation’s share of the sum of the standalone sellingprices of all deliverables:
Gold bars: 146300/(146300+7700) = 95%
Insurance: 7700/(146300+7700) = 5%
Gold Examiner then allocates the total selling price based on standalone selling prices, as follows:
$147,000 Transaction price × 95% = $139650 Gold
$147,000 Transaction price × 5% = $7350 Insurance
REQ 3
REQ 4
Date General Journal Debit Credit March 01, 2018 Cash 147000 Deferred revenue—gold bars 139650 Deferred revenue—insurance 7350