Concept explainers
(1), (a)
Performance obligation:
Performance obligation is the promise made by the seller to supply the goods and service to the customer on or before the contract.
Transaction price:
Transaction price refers to the price that is paid at the time of delivery or after delivery of goods and/or services. Specific situations affecting the transaction price are as follows:
- Variable amount of consideration and the restriction on its recognition.
- Rights for sales return
- Whether the seller is acting as a principle or an agent
- Time value of money
- Payments by the seller to the customer
Deferred revenues:
Collection of cash in advance to render service or to deliver goods in future is known as unearned revenues. These unearned revenues are considered as liabilities until they are earned. For the portion of rendered services or delivered goods, revenues would be recognized by way of passing an
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
To determine: The number of performance obligations exist in the new member deal.
(1), (a)
Answer to Problem 5.1P
Number of performance obligation in the contract is two, they are as follows:
- 1) Unlimited access of facilities and classes
- 2) Special discount coupon
Explanation of Solution
F&S offers new membership plan for unlimited access, and addition with 25% off yoga classes. Hence, access of facility and classes is first performance obligation, and additional yoga class is second performance obligation.
Therefore, the number of performance obligation in the new membership for access facility is two.
(1), (b)
The amount of contract price allocated to each performance obligation.
(1), (b)
Answer to Problem 5.1P
Selling price of yoga coupon
Given,
Transaction price is $700 and
Calculated discount percentageis 4% (3)
Now, calculate the sellingprice of yoga coupon:
Hence, the calculated selling price of yoga coupon is $28.
Selling price of gym
Given,
Transaction price is $700 and
Calculated gym percentageis 96% (4)
Now, calculate the sellingprice of gym:
Hence, the calculated selling price of gym is $672.
Explanation of Solution
Working note:
1. Calculate the value of stand-alone selling price of yoga coupon
Given,
The value of the discount is $75
Estimated redemption is 40%.
Calculation of the stand-alone selling price of discount:
2. Calculate the value of total stand-alone price:
Given,
Stand-alone selling price of gym is $720
Stand-alone selling price of discount is $30
Calculation of the total stand-alone price:
3. Calculate the yoga coupon percentage:
Given,
The calculated stand-alone selling price of yoga coupon is $30 (1)
Stand-alone selling price of gym is $720
Calculation of the yoga coupon percentage:
4. Calculate the gym membership percentage:
Given,
The calculated stand-alone selling price of yoga coupon is $30 (1)
Stand-alone selling price of gym is $720
Calculation of the gym membershippercentage:
(1), (c)
To prepare: The
(1), (c)
Answer to Problem 5.1P
The journal entry to record the gym services is as follows:
Date | Account Title and Explanation | Post Ref. | Debit | Credit |
XXX | Cash | $700 | ||
Service revenue – Membership fees | $672 | |||
Deferred revenue – Yoga coupon | $28 | |||
(To record the service performed to customer) |
Table (2)
Explanation of Solution
- Cash is an asset, and it increases the value of asset by $700, hence debit the cash for $700.
- Service revenue increases the value of
stockholders’ equity by $672 hence credit the Service revenue for $672. - Deferred revenue is a liability, and it increases the value of liability by $28, hence credit the deferred revenue for $28.
Therefore, the journal entry of F&S is recorded.
(2), (a)
The number of performance obligations exist in the Fit 50 member.
(2), (a)
Answer to Problem 5.1P
Number of performance obligation in the contract is one, because member can access the gym for 50 visits.
Explanation of Solution
F&S offers a Fit 50 coupon book with 50 prepaid visits. In this case, the performance of obligation is completed when the customer purchase the book of $500.
Therefore, the number of performance obligation for purchase of Fit 50 coupon book is one.
(2), (b)
The amount of contract price allocated to each performance obligation.
(2), (b)
Answer to Problem 5.1P
The amount of contract price allocated to the performance of obligation is $500.
Explanation of Solution
In this case, the additional prepaid visit is not a performance obligation. So, visitation fees per visit are not included in the contract price of Fit 50 coupon book.
Therefore, the selling price of Fit 50 book is $500.
(2), (b)
To prepare: The journal entry for F&S.
(2), (b)
Answer to Problem 5.1P
The journal entry to record the coupon book is as follows:
Date | Account Title and Explanation | Post Ref. | Debit | Credit |
XXX | Cash | $500 | ||
Deferred revenue – coupon book | $500 | |||
(To record service performed) |
Table (3)
Explanation of Solution
- Cash is an asset, and it increases the value of asset by $500, hence debit the cash for $500.
- Deferred revenue is a liability, and it increases the value of liability by $500, hence credit the deferred revenue for $500.
Therefore, the journal entry of F&S is recorded.
Want to see more full solutions like this?
Chapter 5 Solutions
GEN CMB INTRM ACCTG; CNCT 9E 2
- Problem 5-3Individual Retirement Accounts (LO 5.3) Karen, 28 years old and a single taxpayer, has a salary of $35,000 and rental income of $33,000 for the 2021 calendar tax year. Karen is covered by a pension through her employer. AGI phase-out range for traditional IRA contributions for a single taxpayer who is an active plan participant is $66,000 – $76,000. Question Content Area a. What is the maximum amount that Karen may deduct for contributions to her traditional IRA for 2021?$fill in the blank abcab0f9afd1fe0_1 Question Content Area b. If Karen is a calendar year taxpayer and files her tax return on August 15, what is the last date on which she can make her contribution to the IRA and deduct it for 202arrow_forwardP18–15 VOLUNTARY SETTLEMENTS: PAYMENTS Jacobi Supply Company recently ran into certain financial difficulties that have resulted in the initiation of voluntary settlement procedures. The firm currently has $150,000 in outstanding debts and approximately $75,000 in liquidatable short-term assets. Indicate, for each of the following plans, whether the plan is an extension, a composition, or a combination of the two. Also indicate the cash payments and timing of the payments required of the firm under each plan. Each creditor will be paid ¢50¢ on the dollar immediately, and the debts will be considered fully satisfied. Each creditor will be paid ¢80¢ on the dollar in two quarterly installments of ¢50¢ and ¢30¢. The first installment is to be paid in 90 days. Each creditor will be paid the full amount of its claims in three installments of ¢50¢, ¢25¢, and ¢25¢ on the dollar. The installments will be made in 60-day intervals, beginning in 60 days. A group of creditors with claims of $50,000…arrow_forwardSolve it correctly not use excel Q)Mr. Real borrows P200,000 at 15% compounded annually, agreeing to repay the loan in 18 equal annual payments. How much of the original principal is still unpaid after he has made the 12th paymentarrow_forward
- Problem 13-85 (LO. 8) Wesley, who is single, listed his personal residence with a real estate agent on March 3, 2020, at a price of $390,000. He rejected several offers in the $350,000 range during the summer. Finally, on August 16, 2020, he and the purchaser signed a contract to sell for $363,000. The sale (i.e., closing) took place on September 7, 2020. The closing statement showed the following disbursements: Real estate agent's commission $21,780 Appraisal fee 600 Exterminator's certificate 300 Recording fees 800 Mortgage to First Bank 305,000 Cash to seller 34,520 Wesley's adjusted basis for the house is $200,000. He owned and occupied the house for seven years. On October 1, 2020, Wesley purchases another residence for $325,000. If an amount is zero, enter "0". a. Calculate Wesley's recognized gain on the sale.$fill in the blank 89a3d703a067018_1 b. What is Wesley's adjusted basis for the new residence?$fill in the blank…arrow_forward4.5 Choose which option (Option 1- Option 3) was used to calculate the contract cost for any number of minutes used. Option 1: R 450,90 + R 1,37 (minutes used – 200 minutes) Option 2: R0,07 x minutes used Option 3: R450,90 + R1,37 x minutes used 4.6 Use the formula from 4.5 to calculate the price for the use of 400 minutes in a month.arrow_forwardRequired information Problem 13-66 (LO 13-3) (Algo) Skip to question [The following information applies to the questions displayed below.] XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 40 percent of their salary for five years. For purposes of this problem, ignore payroll taxes in your computations. (Use Table 1.) Note: Round your intermediate calculations and final answers to the nearest whole dollar amount. Problem 13-66 Part b (Algo) b. Assume Julie, an XYZ employee, has the option of participating in XYZ's deferred compensation plan. Julie's marginal tax rate is 37 percent, and she expects the rate to remain constant over the next five years. Julie is trying to decide how much deferred compensation she will need to receive from XYZ in five years to make her indifferent between receiving the current salary of $19,600 and receiving the deferred compensation payment. If Julie takes the salary, she will invest it in a…arrow_forward
- Q.69. Sonic Inc., a manufacturer of power tools, decides to offer a rebate of $120 on its 16-inch mid-range chain saw, which currently has a retail price $520. Sonic Inc. estimate that, as a result of the rebate, sales of this model will increase from 60,000 to 80,000 units next year. The profit margin for Benson before the rebate is $180. Based on the given information, does it make sense for Sonic Inc. to offer the rebate? A. No, since costs are $6,000,000 more than benefits. B. No, since costs are $6,800,000 more than benefits. D. Yes, since the benefits are $7,300,000 more than the costs. C. Yes, since the benefits are $3,400,000 more than the costs. E. The answer cannot be determined based on the information given.arrow_forwardModule 5 - Practice QuestionMr. Jay Brown is 66 years of age and his 2020 income is made up of employmentincome of $75,800, contributed $6,500 to his RRSP. He also earned interestincome from Guaranteed Investment Certificate (GIC) of $3,700 during 2020 andreceived Old Age Security benefits of $7,400 (because of large business lossesduring the previous two years, no amount was withheld from the OAS payments).Mr. Brown and his family live in Toronto, Ontario. For 2020, Mr. Brown’semployer withheld maximum CPP ($2,898) and EI ($856) contributions. Otherinformation pertaining to 2020 is as follows:1. Mr. Brown’s spouse is 59 years old and qualifies for the disability tax credit.Her income for the year totaled $4,500.2. Mr. and Mrs. Brown have two daughters, Keith, aged 15 and Laura, aged17. Keith had income of $2,700 for the year while Laura had net income of$3,000. In September 2020, Laura began full time attendance at a Canadianuniversity. Mr. Brown paid her tuition fees of $6,000, of…arrow_forwardProblem 7-22 Adoption Expenses (LO 77) Carl and Jenny adopt a Korean orphan. The adoption takes 2 years and two trips to Korea and is finalized in 2021. They pay $7,000 in 2020 and $7,500 in 2021 for qualified adoption expenses. In 2021, Carl and Jenny have AGI of $150,000. If required, carry any division out to four decimal places and round final answers to the nearest dollar. Question Content Area a. What is the adoption credit Carl and Jenny can claim in 2021? b. How much credit could they claim if their AGI was $221,660?arrow_forward
- rr.17 Clark Industries has a defined benefit pension plan that specifies annual, year-end retirement benefits equal to: 1.3% × Service years × Final year’s salary Stanley Mills was hired by Clark at the beginning of 2005. Mills is expected to retire at the end of 2049 after 45 years of service. His retirement is expected to span 15 years. At the end of 2024, 20 years after being hired, his salary is $96,000. The company’s actuary projects Mills’s salary to be $430,000 at retirement. The actuary’s discount rate is 6%. For all requirements, round final answers to the nearest whole dollars. Do not round intermediate calculations. Use Excel, or a financial calculator. Required: Estimate the amount of Stanley Mills’s annual retirement payments for the 15 retirement years earned as of the end of 2024.arrow_forwardProblem 13-66 (LO 13-3) (Algo) Skip to question [The following information applies to the questions displayed below.] XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 40 percent of their salary for five years. For purposes of this problem, ignore payroll taxes in your computations. (Use Table 1.) Note: Round your intermediate calculations and final answers to the nearest whole dollar amount. Problem 13-66 Part a (Algo) a. Assume XYZ has a marginal tax rate of 21 percent for the foreseeable future and earns an after-tax rate of return of 13 percent on its assets. Joel Johnson, XYZ's VP of finance, is attempting to determine what amount of deferred compensation XYZ should be willing to pay in five years that would make XYZ indifferent between paying the current salary of $19,600 and paying the deferred compensation. What amount of deferred compensation would accomplish this objective?arrow_forwardP5.11 (LO 1, 3) You have just been hired as a loan officer for Washington Mutual Savings. Selig Equipment and Mountain Bike Inc. have both applied for $125,000 nine-month loans to acquire additional plant equipment. Neither company offered any security for the loans. It is the strict policy of the bank to have only $1,350,000 outstanding in unsecured loans at any point in time. Because the bank currently has $1,210,000 in unsecured loans outstanding, it will be unable to grant loans to both companies. The bank president has given you the following selected information from the companies’ loan applications. Selig Equipment Mountain Bike Inc. Cash $15,000 $160,000 Accounts receivable 215,000 470,000 Inventory 305,000 195,000 Prepaid expenses 180,000 10,000 Total current assets $715,000 $835,000 Noncurrent assets 1,455,000 1,875,000 Total assets $2,170,000 $2,710,000 Selig Equipment Mountain Bike Inc. Current liabilities $285,000 $325,000 Long-term…arrow_forward
- PFIN (with PFIN Online, 1 term (6 months) Printed...FinanceISBN:9781337117005Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning