On March 1, 2016, Gold Examiner receives $162,000 from a local bank and promises

Question

On March 1, 2016, Gold Examiner receives $162,000 from a local bank and promises to deliver 96 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 $1,680 per unit, and Gold Examiner estimates the stand-alone price of the replacement insurance service to be $70 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?

Explanation / Answer

Answer:1 These prices are bundled so you have to pro rate them for the new bundle price. [(162,000) / (161280+6,720)]* performance obligation price.

New price of gold sales = (162/168)* 161280 = $155,520

New price of Warranty = (162/168)*6,720 = $6480

Answer: Journal entry:

March 01, 2016:

Cash A/C Dr. $ 162,000
     To Deferred revenue—insurance A/C    $ 6,480
     To Deferred revenue—gold bars A/C $ 155,520

March 30, 2016

Deferred revenue—gold bars A/C Dr. $ 155,520
      To Sales revenue A/C                             $155,520

Apirl 01, 2016

Deferred revenue—insurance A/C Dr. $ 6,480
          To Service revenue A/C $ 6,480

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