Brief Exercise 5–16
If a seller is purchasing distinct goods or services from a customer at the fair value
of those goods or services, we account for that purchase as a separate transaction.
Otherwise, excess payments by the seller are treated as a refund of the customer’s
purchase. If the payments are made (or are expected to be made) at the 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,
Brief Exercise 5–17
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 charged by
Brief Exercise 5–18
Under the expected cost plus margin approach, O’Hara would base its estimate
Brief Exercise 5–19
Under the residual approach, O’Hara would base its estimate of the stand-alone
Brief Exercise 5–20
The software license is a right of use, since Saar’s activities during the license
period (which for this software does not have an end date) will not affect the value
Intermediate Accounting, 8/e 5–23
Brief Exercise 5–21
Because Carlos had completed training and was open for business on August 1,
2016, TopChop apparently has satisfied its performance obligation with respect to
Brief Exercise 5–22
Brief Exercise 5–23
Brief Exercise 5–24
GoodBuy should not recognize revenue when it sells the $1,000,000 of gift
Brief Exercise 5–25
receivable for the $3,000 until it delivers the furniture to Ramirez.
Brief Exercise 5–26
For long-term contracts, we view a company as having a contract asset if CIP >
Intermediate Accounting, 8/e 5–25
Brief Exercise 5–27
Total estimated cost to complete = $6 million + 9 million = $15 million
% of completion = $6 million $15 million = 40%
Brief Exercise 5–28
Brief Exercise 5–29
No revenue or gross profit recognized until project completed in year 2.
Brief Exercise 5–30
Brief Exercise 5–31
Receivables turnover ratio = Net sales
Average accounts receivable (net)
Intermediate Accounting, 8/e 5–27
Brief Exercise 5–32
Profit margin = Net income
Sales
Shareholders’ equity, beginning of period $500,000
Brief Exercise 5–33
Return on
equity
=
Profit
margin
×
Asset turnover
×
Equity multiplier
Intermediate Accounting, 8/e 5–29
Brief Exercise 5–34
Inventory turnover ratio = Cost of goods sold Average inventory
APPENDIX BRIEF EXERCISES
Brief Exercise 5–35
2016 Gross profit = $3,000,000 – $1,200,000 = $1,800,000
2016 Gross profit percentage = Gross profit Sales:
Brief Exercise 5–36
Brief Exercise 5–37
No gross profit will be recognized in either 2016 or 2017. Gross profit will not
Intermediate Accounting, 8/e 5–31
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
vendor-specific objective evidence (VSOE) allows them to allocate revenue to those
Brief Exercise 5–40
Orange has separate sales prices for the two parts of LearnIt-Plus, so the
company can base its estimates of the fair value of those parts according to their
Brief Exercise 5–41
Specific conditions for revenue recognition of the initial franchise fee are
Intermediate Accounting, 8/e 5–33
EXERCISES
Exercise 5–1
The FASB Accounting Standards Codification® represents the single source of
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
that it is appropriate to recognize revenue at a point in time, the appropriate citation
is:
Requirement 3
Regarding circumstances under which sellers can recognize revenue over time,
the appropriate citation is:
Exercise 5–2
Requirement 1
Ski West should recognize revenue over the ski season. Ski West fulfills its
performance obligation over time as it delivers the service to its pass holders by
providing access to its ski lifts.
Requirement 2
November 6, 2016 To record the cash collection.
December 31, 2016 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 2016 income statement. The $360
Intermediate Accounting, 8/e 5–35
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:
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
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
Requirement 2
Regarding indicators that a promised good or service is separately identifiable,
the appropriate citation is:
Requirement 3
Regarding circumstances under which an option is viewed as a performance
obligation, the appropriate citation is:
Intermediate Accounting, 8/e 5–37
Exercise 5-5
Requirement 1
Number of performance obligations in the contract: 2.
Requirement 2
Value of the gold bars:
$1,440/unit 100 units = $ 144,000
Exercise 5-5 (concluded)
Gold Examiner then allocates the total selling price based on stand-alone selling
prices, as follows:
Requirement 3
Entry on March 30, 2016:
Requirement 4
Entry on April 1, 2016:
$147,000
Transaction Price
Intermediate Accounting, 8/e 5–39
Exercise 5–6
Requirement 1
Number of performance obligations in the contract: 2.
Requirement 2
If Clarks can’t estimate the stand-alone selling price of SunBoots, it will use the
residual method to calculate that price as the amount of the total transaction price
minus the value of the discount.
Exercise 5–7
Requirement 1
The amount of revenue Manhattan Today should recognize upon receipt of the
subscription fee: $0.
Requirement 2
Number of performance obligations in the contract: 2.