Brief Exercise 5–40
Orange has separate sales prices for the two parts of LearnIt-Plus, so the
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, the accounting would be the same. Orange
(VSOE is not required under IFRS).
Brief Exercise 5–41
Specific conditions for revenue recognition of the initial franchise fee are
provided by FASB ASC 952–605–25–1. A key to these conditions is the concept of
performance is considered to have occurred when the franchise opens for business.
EXERCISES
Exercise 5–1
The FASB Accounting Standards Codification® represents the single source of
authoritative U.S. generally accepted accounting principles.
Requirement 1
Regarding the five steps used to apply the revenue recognition principle, the
appropriate citation is:
Requirement 2
Regarding indicators that control has passed from the seller to the buyer, such
is:
FASB ASC 606–10–25–30: “Revenue from Contracts with
Requirement 3
Regarding circumstances under which sellers can recognize revenue over
time, the appropriate citation is:
Time.”
Exercise 5–2
Requirement 1
Ski West should recognize revenue over the ski season. Ski West fulfills its
Requirement 2
November 6, 2018 To record the cash collection.
December 31, 2018 To recognize revenue earned in December (no
revenue earned in November, as season starts on December 1).
Requirement 3
$90 is included in revenue in Ski West’s 2018 income statement. The $360
Exercise 5–3
VP first must identify each performance obligation’s share of the sum of the
stand-alone selling prices of all performance obligations:
$1,700 + 100 + 200
100%
VP would allocate the total selling price of the package ($1,900) based on
stand-alone selling prices, as follows:
TV: $1,900 × 85% = $1,615
$1,900
Transaction Price
Exercise 5–4
The FASB Accounting Standards Codification® represents the single source of
authoritative U.S. generally accepted accounting principles.
Requirement 1
Regarding the basis upon which a contract’s transaction price allocated to its
FASB ASC 606–10–32–29: “Revenue from Contracts with
Requirement 2
Regarding indicators that a promised good or service is separately identifiable,
the appropriate citation is:
FASB ASC 606–10–25–21: “Revenue from Contracts with
Requirement 3
Regarding circumstances under which an option is viewed as a performance
obligation, the appropriate citation is:
FASB ASC 606–10–55–42: “Revenue from Contracts with
Exercise 5-5
Requirement 1
Number of performance obligations in the contract: 2.
Delivery of gold is one performance obligation. The additional insurance is a
other performance obligation of delivering gold, and the seller’s role is not to
performance obligations to be satisfied in the future.
Requirement 2
Value of the gold bars:
$1,440/unit 100 units = $ 144,000
of the stand-alone selling prices of all deliverables:
Exercise 5-5 (concluded)
Gold Examiner then allocates the total selling price based on stand-alone selling
prices, as follows:
Entry on March 1, 2018:
Cash 147,000
Requirement 3
Entry on March 30, 2018:
Gold Examiner recognizes only the portion of revenue associated with passing
Requirement 4
Entry on April 1, 2018:
Deferred revenue–insurance 5,880
$147,000
Transaction Price
$141,120
Gold
$5,880
Insurance
96% 4%
So, the discount coupon is distinct and qualifies as a performance obligation.
Requirement 2
If Clarks can’t estimate the stand-alone selling price of SunBoots, it will use the
Sales revenue (to balance) 64,000
Deferred revenue (discount option) 6,000*
Exercise 5–7
Requirement 1
The amount of revenue Manhattan Today should recognize upon receipt of the
subscription fee: $0.
Even though Manhattan Today received payments from customers for an annual
deferred revenue – subscription will be reduced and revenue recognized.
Requirement 2
Number of performance obligations in the contract: 2.
Delivering newspapers is one performance obligation. The coupon for a 40%
with the other performance obligation of delivering newspapers, so it is distinct
redeemed.
Exercise 5–7 (concluded)
Requirement 3
Value of the coupon: 40% discount $125 carriage fee = $ 50
Estimated redemption 30 %
Manhattan Today must identify each performance obligation’s share of the sum
of the stand-alone selling prices of all deliverables:
Manhattan Today allocates the total selling price based on stand-alone selling
prices, as follows:
Upon receiving the fee for 10 subscriptions, the journal entry should be:
$130
Transaction Price
$117
Subscription
$13
Coupon
90% 10%