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Intermediate Accounting, 8/e 5-41
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:
Coupon:
$15
= 10%
$15 + 135
100%
Manhattan Today allocates the total selling price based on stand-alone selling
prices, as follows:
$130
Transaction Price
90%
10%
Exercise 5-8
Requirement 1
Number of performance obligations in the contract: 2.
Delivery of keyboards is one performance obligation. The special discount
coupon is a second performance obligation, as it provides a material right that the
Requirement 2
When two or more performance obligations are associated with a single
transaction price, the transaction price must be allocated to the performance
obligations on the basis of respective stand-alone selling prices (estimated if not
directly available).
Meta’s estimated stand-alone selling price of the discount option is:
Value of the discount:
Intermediate Accounting, 8/e 5-43
Exercise 5-8 (concluded)
Meta then allocates the total selling price based on stand-alone selling prices, as
follows:
Requirement 3
All customers are eligible for a 5% discount on all sales. Therefore, the 5%
discount option issued to Bionics, Inc. does not give any material right to the
customer, so it is not a performance obligation in the contract, and Meta would
account for both (a) the delivery of keyboards and (b) the 5% coupon as a single
performance obligation.
$95,000
Transaction Price
98%
2%
Exercise 5–9
Requirement 1
The expected value would be calculated as follows:
Possible Amounts Probabilities Expected Amounts
$70,000 ($50,000 fixed fee + 20,000 bonus) × 20% = $14,000
Requirement 2
Requirement 3
Because Thomas is very uncertain of its estimate, Thomas can’t argue that it is
Intermediate Accounting, 8/e 5-45
Exercise 5-10
Requirement 1
During the July 1 – July 15 period, Rocky estimates a less than 50% chance it
Requirement 2
During the July 16 – July 31 period, Rocky earns guide revenue of another 15
days × $1,000 per day = $15,000. In addition, because Rocky estimates a greater
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
zero and record the offsetting adjustment in revenue.
Exercise 5-11
Requirement 1
Rocky’s normal guide revenue is 10 days × $1,000 per day = $10,000. Rocky
also estimates that there is a 30% chance it will earn the bonus, so its estimate of the
expected value of the bonus revenue earned to date is:
Possible Amounts Probabilities Expected Amounts
$1,000 ($100 bonus × 10 days) × 30% = $300
Requirement 2
During the July 16 – July 31 period, Rocky earns another 15 days × $1,000/day
= $15,000 of its normal guiding revenue. In addition, because Rocky now believes
there is an 80% chance it will earn the bonus, its estimate of the expected value of
the bonus revenue earned to date (based on all 25 days guided during July) is:
Possible Amounts Probabilities Expected Amounts
Intermediate Accounting, 8/e 5-47
Exercise 5-11 (concluded)
With $300 of bonus receivable and revenue already recognized, Rocky must
recognize an additional $2,000 – $300 = $1,700 of bonus receivable and bonus
revenue. Rocky’s July 31 journal entry would be:
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.
Exercise 5–12
Requirement 1
Requirement 2
Because the advertising services have a fair value ($5,000) that is less than the
Requirement 3
Requirement 4
Intermediate Accounting, 8/e 5-49
Exercise 5–13
Requirement 1
Under the adjusted market assessment approach, VP would base its estimate of
Requirement 2
Requirement 3
Exercise 5–14
The FASB Accounting Standards Codification® represents the single source of
authoritative U.S. generally accepted accounting principles.
Requirement 1
Requirement 2
Requirement 3
Intermediate Accounting, 8/e 5-51
Exercise 5–15
Requirement 1
Requirement 2
As of July 1, 2016, Monitor has not fulfilled any of its performance obligations,
so the entire $600,000 franchise fee is recorded as deferred revenue.
Requirement 3
On September 1, 2016, Monitor has satisfied its performance obligations with
respect to training and certifying Perkins and delivering an equipped Monitor
Exercise 5–16
The FASB Accounting Standards Codification® represents the single source of
authoritative U.S. generally accepted accounting principles.
Requirement 1
Requirement 2
Requirement 3
Intermediate Accounting, 8/e 5-53
Exercise 5–17
Requirement 1
Revenue recognition:
Exercise 5–17 (concluded)
Requirement 3
Balance Sheet
At December 31, 2016
Requirement 4
Balance Sheet
At December 31, 2016
Intermediate Accounting, 8/e 5-55
Exercise 5–18
Requirement 1
Revenue recognition:
Gross profit (loss) recognition:
Exercise 5–18 (concluded)
Requirement 2
Year
Revenue
recognized
Gross profit (loss)
recognized
Requirement 3
2017 Revenue recognition:
2017 Gross profit (loss) recognition:
Intermediate Accounting, 8/e 5-57
Exercise 5–19
Requirement 1
2016 2017 2018
Contract price $8,000,000 $8,000,000 $8,000,000
Revenue recognition:
Gross profit (loss) recognition:
Exercise 5–19 (continued)
Requirement 2
2016
2017
Construction in progress
2,000,000
2,500,000
Various accounts
2,000,000
2,500,000
To record construction costs
To record cash collections
Requirement 3
Balance Sheet
2016
2017
Current assets:
Intermediate Accounting, 8/e 5-59
Exercise 5–20
Requirement 1
Year
Revenue
recognized
Gross profit (loss)
recognized
2016
- 0 -
- 0 -
Requirement 2
2016
2017
Construction in progress
2,000,000
2,500,000
Various accounts
2,000,000
2,500,000
To record construction costs
Exercise 5–20 (concluded)
Requirement 3
Balance Sheet
2016
2017
Current assets:
Accounts receivable
$250,000
$525,000
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