On February 12, 2016, Mohawk Home and Garden enters into contract with a local b

Question

On February 12, 2016, Mohawk Home and Garden enters into contract with a local business to provide weekly grass-cutting services between May and September of that year, and receives $2,000 in advance. As part of a local business promotion, Mohawk offers a 50% discount on any barbecue grill with a list price in excess of $200. In the past, Mohawk charged the same amount ($2,000) for the same weekly grass-cutting service, but without the grill discount coupon. Based on historical experience with other clients, Mohawk estimates that about 40% of the coupons will be redeemed, purchasing grills with an average total list price of $400.

REQUIRED

a. How many performance obligations are in this contract? Explain the reasons for your answer.

b. Prepare the journal entry to account for the transaction as of February 12, 2016, clearly identifying the revenue or

deferred revenue associated with each performance obligation. The Company uses the “stand-alone” selling price method to allocate transaction price to performance obligations.

Explanation / Answer

ans 1

There are two performance obligation grass cutting and coupon as both are identifiable and distict

There are two performance obligation grass cutting and coupon as both are identifiable and distict

Discount 2000*.5 1000 Estimated Stand alone selling price 1000*.4 400 Total standalone selling price 2000+400 2400 Grass cutting 2000/2400*100 83.33333 So 83.33% of 2000 1667 Coupon 16.67 of $2000 333 12, Feb 2016 Dr Cr Cash 2000 Deferred Revenue 2000 when performance is performed Deferred Revenue 1667 Revenue 1667

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