Finerly should recognize 0 of revenue upon delivery

• 10
• 83% (30) 25 out of 30 people found this document helpful

This preview shows page 4 - 6 out of 10 pages.

Finerly should recognize \$0 of revenue upon delivery to distributors. Given the uncertainty about estimated returns, Finerly can’t argue that it is probable that it won’t have to reverse (adjust downward) a significant amount of revenue in the future because of a change in returns. Therefore, Finerly won’t recognize revenue until it either can better estimate returns or sales to end consumers occur. Essentially, because Finerly can’t estimate returns, it treats this transaction as if it is placing those goods on consignment with independent distributors.
Video Planet (“VP”) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and onsite installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for \$1,700, sells the remote separately for \$100, and offers the installation service separately for \$200. The entire package sells for \$1,900. Required:
How much revenue would be allocated to the TV, the remote, and the installation service? VP first must identify each performance obligation’s share of the sum of the stand-alone selling prices of all performance obligations: TV: \$1,700 = 85% \$1,700 + 100 + 200 Remote: \$100 = 5% \$1,700 + 100 + 200 Installation: \$200 = 10 % \$1,700 + 100 + 200 100% 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 Remote: \$1,900 × 5% = 95 Installation: \$1,900 × 10% = 190 \$1,900 On March 1, 2016, Gold Examiner receives \$147,000 from a local bank and promises to deliver 100 units of certified 1-oz. gold bars on a future date. The contract states that ownership passes to the bank when Gold Examiner delivers the products to Brink’s, a third-party carrier. In addition, Gold Examiner has agreed to provide a replacement shipment at no additional cost if the product is lost in transit. The stand- alone price of a gold bar is \$1,440 per unit, and Gold Examiner estimates the stand-alone price of the replacement insurance service to be \$60 per unit. Brink’s picked up the gold bars from Gold Examiner on March 30, and delivery to the bank occurred on April 1. Required: 1. How many performance obligations are in this contract? 2. Prepare the journal entry Gold Examiner would record on March 1.