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%
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
Accounts receivable
2,500,000
2,750,000
Billings on construction contract
2,500,000
2,750,000
To record progress billings
Cash
2,250,000
2,475,000
Accounts receivable
2,250,000
2,475,000
To record cash collections
Construction in progress
666,667
Cost of construction
2,000,000
Revenue from long–term contracts
To record gross profit
Cost of construction (1)
2,544,445
Revenue from long–term contracts
Construction in progress
To record expected loss
Requirement 3
Balance Sheet
2016
2017
Current assets:
Current liabilities:
of costs less loss ($4,400,000**)
Intermediate Accounting, 8/e 5–59
Exercise 5–20
Requirement 1
Year
Revenue
recognized
Gross profit (loss)
recognized
2016
– 0 –
– 0 –
2018
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
Accounts receivable
2,500,000
2,750,000
Billings
2,500,000
2,750,000
To record progress billings
Cash
2,250,000
2,475,000
Accounts receivable
2,250,000
2,475,000
To record cash collections
Loss on long–term contract
100,000
Construction in progress
To record expected loss
Exercise 5–20 (concluded)
Requirement 3
Balance Sheet
2016
2017
Current assets:
Accounts receivable
$250,000
$525,000
Current liabilities:
($2,000,000)
loss ($4,400,000*)
$850,000