Brief Exercise 5-11
Number of performance obligations in the contract: 1.
The separate goods and services that Precision Equipment has agreed to provide
each other. The contractor’s role is to integrate and customize them to create one
automated assembly line.
Brief Exercise 5-12
Number of performance obligations in the contract: 1.
Lego enters into a contract to design and construct a specific building. Each
components into a combined item (garage).
Brief Exercise 5-13
Number of performance obligations in the contract: 1.
A right of return is not a performance obligation. Instead, the right of return
consideration.
Aria should estimate sales returns and reduce revenue by that amount in order
$280,233:
Revenue $288,900
Brief Exercise 5–14
The expected value would be calculated as follows:
Possible Amounts Probabilities Expected Amounts
$35,000 ($25,000 fixed fee + 10,000 bonus) × 50% = $17,500
Or, alternatively:
Brief Exercise 5-15
When a contract includes variable consideration, sellers are constrained to
that Continental will recognize during the year is limited to the fixed annual
recognized as revenue if and when it is earned.
Brief Exercise 5–16
Finerly should recognize $0 of revenue upon delivery to distributors. Given the
Essentially, because Finerly can’t estimate returns, it treats this transaction as if it is
placing those goods on consignment with independent distributors.
Brief Exercise 5–17
Amazon will recognize revenue of $150, its commission on the sale. In this
transaction, Amazon never has primary responsibility for delivering a product or
receives.
Brief Exercise 5–18
If a seller is purchasing distinct goods or services from a customer at the fair
time of the original sale, the transaction price of the customer’s purchase is reduced
immediately by the refund. If payment is not expected at the time of the sale,
at that time.
There is no indication that Lewis’ payment to AdCo for $10,000, which is
$2,500 more than the fair value of those services ($7,500), was expected at the
time and net revenue over the period of $60,000 – 2,500 = $57,500.
Brief Exercise 5–19
Under the adjusted market assessment approach, O’Hara would base its
estimate of the stand-alone selling price of the club-fitting services on the prices
110% = $121.
Brief Exercise 5–20
Under the expected cost plus margin approach, O’Hara would base its estimate
be $60 + 18 = $78.
Brief Exercise 5–21
Under the residual approach, O’Hara would base its estimate of the
services to be $1,500 – 1,400 = $100.
Brief Exercise 5–22
The software is functional intellectual property and the license transfers a
right of use, since Saar’s activities during the license period (which for this
affecting the benefit that Kim receives, so Saar should recognize revenue as that
recognizes revenue of $100,000 + 10,000 = $110,000 in 2018.
Brief Exercise 5–23
$110,000. The software is functional intellectual property and the license
transfers a right of use, since Saar’s activities during the license period (which for
benefit that Kim receives, so Saar should recognize revenue as that access is
through December), Saar should recognize revenue of 4 ÷ 36 = 1/9 of $90,000, or
Brief Exercise 5–24
$190,000. The software is functional intellectual property and the license
transfers a right of use, since Saar’s activities during the license period (which for
of revenue for the license to use the Saar Associates name at the start of the license.
In total, Saar recognizes revenue of $100,000 + 90,000 = $190,000 in 2018.
Brief Exercise 5–25
Because Carlos had completed training and was open for business on August
1, 2018, TopChop apparently has satisfied its performance obligation with respect
$15,000. In total, TopChop recognizes revenue from Carlos of $50,000 + 15,000 =
$65,000 in 2018.
Brief Exercise 5–26
$0. Prior to delivery, Dowell maintains control of the inventory and should
Brief Exercise 5–27
$250, equal to revenue for the sale of one painting. Kerianne has a
commission of $250 × 20% = $50 as an expense.
Brief Exercise 5–28
GoodBuy should not recognize revenue when it sells the $1,000,000 of gift
redeemed, totaling $870,000.
Brief Exercise 5–29
Contract asset: $0.
Holt has a contract liability, deferred revenue, of $2,000. It never has a contract
receivable for the $3,000 until it delivers the furniture to Ramirez.
Brief Exercise 5–30
For long-term contracts, we view a company as having a contract asset if CIP >
the second construction job of $2,000 ($5,000 billings less $3,000 CIP).
Brief Exercise 5–31
Total estimated cost to complete = $6 million + $9 million = $15 million
Note: We can also determine first year gross profit as follows:
Brief Exercise 5–32
Assets:
Accounts receivable ($7 million – 5 million) $2,000,000
* First year gross profit = $8,000,000 – 6,000,000 = $2,000,000
Brief Exercise 5–33
No revenue or gross profit recognized until project completed in year 2.
Year 2 gross profit $ 4,000,000
Brief Exercise 5–34
The anticipated loss of $3 million ($30 million contract price less total
estimated costs of $33 million) must be recognized in the first year applying either
method.
SUPPLEMENT BRIEF
EXERCISES
Brief Exercise 5–35
2018 Gross profit = $3,000,000 – $1,200,000 = $1,800,000
2018 gross profit = 2018 cash collection of $150,000 x 60% = $90,000
Brief Exercise 5–36
Initial deferred gross profit ($3,000,000 – 1,200,000) $1,800,000
Deferred gross profit at the end of 2019 $1,620,000
Brief Exercise 5–37
No gross profit will be recognized in either 2018 or 2019. Gross profit will not
with the ninth installment payment.
Brief Exercise 5–38
Year 1:
Revenue: $6 million
Year 2:
Revenue: $14 million ($20 million total – 6 million in year
1)
Brief Exercise 5–39
Orange has separate sales prices for the two parts of LearnIt-Plus, so that
($150 + 100)] = $80, and that revenue will be deferred and recognized over the life
of the one-year period in which the Office Hours are delivered.
If LearnIt were not sold separately, Orange would not have VSOE for all of
life of the one-year period in which the Office Hours are delivered.