Exercise 5-8
Requirement 1
Number of performance obligations in the contract: 2.
Delivery of keyboards is one performance obligation. The special discount
being distinct, as it could be sold or provided separately, and it is separately
Requirement 2
When two or more performance obligations are associated with a single
Meta’s estimated stand-alone selling price of the discount option is:
Value of the discount:
(25% discount – 5% normal discount) $20,000 = $ 4,000
Stand-alone selling price of the keyboards:
$19.6 5,000 keyboards = 98 ,000
Discount: $2,000 = 2%
100%
Exercise 5-8 (concluded)
Meta then allocates the total selling price based on stand-alone selling prices, as
follows:
The journal entry to record the sale is:
Cash 95,000
The deferred revenue for the option to exercise the discount coupon is
earned when the coupon either is exercised or expires in six months.
Requirement 3
All customers are eligible for a 5% discount on all sales. Therefore, the 5%
performance obligation.
Cash 95,000
$95,000
Transaction Price
$93,100
Keyboards
$1,900
Discount
98% 2%
Requirement 2
The most likely amount is the flat fee of $50,000, because there is a greater
Requirement 3
Because Thomas is very uncertain of its estimate, Thomas can’t argue that it is
be the flat fee of $50,000.
Exercise 5-10
Requirement 1
During the July 1 – July 15 period, Rocky estimates a less than 50% chance it
will earn the bonus, so using the “most likely amount” approach, it assumes no
Service revenue ($1,000 × 10 days) 10,000
Requirement 2
During the July 16 – July 31 period, Rocky earns guide revenue of another 15
Accounts receivable ($1,000 ×15 days) 15,000
Requirement 3
On August 5, Rocky learns that it won’t receive a bonus, and receives only the
$25,000 balance in accounts receivable. Rocky must reduce its bonus receivable to
Service revenue ($100 × 25 days) 2,500
Bonus receivable 2,500
Exercise 5-11
Requirement 1
Rocky’s normal guide revenue is 10 days × $1,000 per day = $10,000. Rocky
Possible Amounts Probabilities Expected Amounts
Expected bonus as of July 15 $300
Bonus receivable ($100 × 30% × 10 days) 300
Service revenue 10,300
Requirement 2
During the July 16 – July 31 period, Rocky earns another 15 days ×
during July) is:
Possible Amounts Probabilities Expected Amounts
$2,500 ($100 bonus × 25 days) × 80% = $2,000
Or, alternatively: $100 × 25 days × 80% = $2,000.
Exercise 5-11 (concluded)
With $300 of bonus receivable and revenue already recognized, Rocky must
Accounts receivable ($1,000 × 15 days) 15,000
Requirement 3
On August 5, Rocky learns that it won’t receive a bonus, and receives only the
$25,000 balance in accounts receivable. Rocky also must reduce its bonus
receivable to zero and record the offsetting adjustment in revenue.
Bonus receivable 2,000
Exercise 5–12
Requirement 1
Record revenue upon sale:
Requirement 2
Because the advertising services have a fair value ($5,000) that is less than the
Advertising expense 5,000
Sales revenue 7,000
Requirement 3
Record receipt of cash:
Requirement 4
It is probable that Willett will pay Furtastic, so the relatively low likelihood of
bad debts does not affect Furtastic’s recognition of revenue on the Willet sale. If
June 30.
Exercise 5–13
Requirement 1
Under the adjusted market assessment approach, VP would base its estimate of
stand-alone selling price of the installation service to be $150, the amount charged
by competitors for that service.
Requirement 2
Under the expected cost plus margin approach, VP would base its estimate of
40 = $140.
Requirement 3
Under the residual approach, VP would base its estimate of the stand-alone
price of the installation service to be $1,900 – ($1,750 + 100) = $50.
Exercise 5–14
The FASB Accounting Standards Codification® represents the single source of
authoritative U.S. generally accepted accounting principles.
Requirement 1
Regarding the alternative approaches that can be used to estimate variable
consideration, the appropriate citation is:
Requirement 2
Regarding the alternative approaches that can be used to estimate the
the appropriate citation is:
Prices.”
Requirement 3
Regarding the timing of revenue recognition with respect to licenses, the
appropriate citation is:
the Nature of the Entity’s Promise.”
Requirement 4
Regarding indicators for assessing whether a seller is a principal, the
appropriate citation is:
versus Agent Considerations.”
Exercise 5–15
Requirement 1
Total amount of franchise agreement $ 600,000
Stand-alone selling price of five-year right 135 ,000
Requirement 2
As of July 1, 2018, Monitor has not fulfilled any of its performance obligations,
so the entire $600,000 franchise fee is recorded as deferred revenue.
Deferred revenue 600,000
Requirement 3
On September 1, 2018, Monitor has satisfied its performance obligations with
(5 × 12)) = $9,000 associated with that right. Total revenue recognized for the year
ended December 31, 2018, is $465,000 + 9,000 = $474,000.