5–12 Intermediate Accounting, 8/e
PROBLEMS
Problem 5-1
Requirement 1
a. Number of performance obligations in the contract: 2. The unlimited access to
facilities and classes for one year is one performance obligation. Because the
discount voucher provides a material right to the customer that the customer
would not receive otherwise (a 25% discount rather than a 10% discount), it is a
b. To allocate the contract price to the performance obligation, we should first
consider that SZ would offer a 15 percent discount on the yoga course to all
customers as part of a seasonal promotion. So, a 35 percent discount provides a
Alternate Exercises and Problems 5–13
Problem 5-1 (continued)
SZ must identify each performance obligation’s share of the sum of the stand-alone
selling prices of all deliverables:
Yoga discount voucher:
$20
3.85%
$20 + 500
$20 + 500
SZ then allocates the total selling price based on stand-alone selling prices, as
follows:
c. Since the discount voucher of the yoga course would be a distinct performance
obligation, SZ would recognize revenue for the sale of annual membership fee
and discount voucher.
$500
Transaction Price
5–14 Intermediate Accounting, 8/e
Problem 5-1 (concluded)
Requirement 2
a. Number of performance obligations in the contract: 2. The option to pay $12 for
additional visits does not constitute a material right, because it is equal to the
Alternate Exercises and Problems 5–15
Problem 5-2
Requirement 1
2016 2017 2018
Contract price $15,000,000 $15,000,000 $15,000,000
Actual costs to date 4,000,000 8,800,000 13,000,000
Revenue recognition:
2016: $4,000,000
= 33.33% x $15,000,000 = $5,000,000
Gross profit (loss) recognition:
2016: $5,000,000 – 4,000,000 = $1,000,000
5–16 Intermediate Accounting, 8/e
Problem 5-2 (continued)
Requirement 2
2016
2017
2018
Construction in progress
4,000,000
4,800,000
4,200,000
Various accounts
4,000,000
4,800,000
4,200,000
Accounts receivable
3,500,000
5,000,000
6,500,000
Billings on construction contract
3,500,000
5,000,000
6,500,000
Cash
2,800,000
5,600,000
6,600,000
Accounts receivable
2,800,000
5,600,000
6,600,000
Construction in progress (gross profit)
1,000,000
512,500
487,500
Cost of construction (cost incurred)
4,000,000
4,800,000
4,200,000
Revenue from long-term contracts (1)
5,000,000
5,312,500
4,687,500
(1) Revenue recognized:
2016: 33.33% x $15,000,000 = $5,000,000
Alternate Exercises and Problems 5–17
Problem 5-2 (continued)
Requirement 3
Balance Sheet
2016
2017
Current assets:
$ 700,000
$10,312,500
Requirement 4
2016 2017 2018
Costs incurred during the year $4,000,000 $4,200,000 $7,200,000
2016 2017 2018
Contract price $15,000,000 $15,000,000 $15,000,000
Actual costs to date 4,000,000 8,200,000 15,400,000
5–18 Intermediate Accounting, 8/e
Problem 5-2 (concluded)
Revenue recognition:
2016: $4,000,000
= 33.33% x $15,000,000 = $5,000,000
Gross profit (loss) recognition:
2016: $5,000,000 – 4,000,000 = $1,000,000
Alternate Exercises and Problems 5–19
Problem 5-3
Requirement 1
Total profit = $800,000 – 400,000 = $400,000
10/31/13
10/31/14
10/31/15
10/31/16
Cash collections
$200,000
$200,000
$200,000
$200,000
$400,000
– 0 –
– 0 –
– 0 –
$100,000
$100,000
$100,000
$100,000
– 0 –
– 0 –
$200,000
$200,000
5–20 Intermediate Accounting, 8/e
Problem 5-3 (continued)
Requirement 2
Point of
Delivery
Installment
Sales
Cost Recovery
Installment receivable
800,000
Sales revenue
800,000
Cost of goods sold
400,000
Inventory
400,000
To record sale on 10/31/13.
Installment receivable
800,000
800,000
Inventory
400,000
400,000
Deferred gross profit
To record sale on 10/31/14.
Cash
200,000
200,000
200,000
Installment receivable
200,000
200,000
200,000
Entry made each Oct. 31.
Deferred gross profit
100,000
Entry made each Oct. 31.
Deferred gross profit
200,000
Alternate Exercises and Problems 5–21
Problem 5-3 (concluded)
Requirement 3
Point of
Delivery
Installment
Sales
Cost
Recovery
December 31, 2016
Assets
Installment receivables
600,000
600,000
600,000
December 31, 2017
Assets
Installment receivable
400,000
400,000
400,000