Question

On March 1, 2018, Gold Examiner receives $158,000 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 $1,560 per unit, and Gold Examiner estimates the stand-alone price of the replacement insurance service to be $65 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. to 4. Prepare the journal entry Gold Examiner would record on March 1, March 30 and April 1.

Answer 1

1
Number of performance obligations in the contract is 2.
2
		Debit	Credit
March 01, 2018	Cash	158000
	Deferred revenue—gold bars		151680
	Deferred revenue—insurance		6320
March 30, 2018	Deferred revenue—gold bars	151680
	Sales revenue		151680
Apirl 01, 2018	Deferred revenue—insurance	6320
	Service revenue		6320
	Workings:
	Value of the gold bars	149760		=1560*96
	Stand­alone selling price of the insurance	6240		=65*96
	Total of stand­alone prices	156000
	Allocation:
	Deferred revenue—gold bars	151680		=158000/156000*149760
	Deferred revenue—insurance	6320		=158000/156000*6240