Creative computing sells a tablet

Accounting Unit 3

· After reading the background information on revenue recognition in Chapter 5 from your Intermediate Accounting text, use a Word document to address the following problems:

· P 5-1, "Upfront Fees; Performance Obligations," page 284.

· Apply your revenue recognition skills to answer the required questions.

· P 5-2, "Performance Obligations; Warranties; Option," page 284.

· Apply your critical thinking skills and knowledge of revenue recognition in this problem.

· P 5-8, "Variable Transaction Price," page 286.

· Apply your knowledge of variable transaction pricing in this assignment.

Where appropriate, show the calculations leading to the final solution. Review the Revenue Recognition Scoring Guide to ensure you complete all grading criteria.

P 5–1 Upfront fees; performance obligations

• LO5–4, LO5–5

Fit & Slim (F&S) is a health club that offers members various gym services.

Required:

1. Assume F&S offers a deal whereby enrolling in a new membership for $700 provides a year of unlimited access to facilities and also entitles the member to receive a voucher redeemable for 25% off yoga classes for one year. The yoga classes are offered to gym members as well as to the general public. A new membership normally sells for $720, and a one-year enrollment in yoga classes sells for an additional $500. F&S estimates that approximately 40% of the vouchers will be redeemed. F&S offers a 10% discount on all one-year enrollments in classes as part of its normal promotion strategy.

1. How many performance obligations are included in the new member deal?

2. How much of the contract price would be allocated to each performance obligation? Explain your answer.

3. Prepare the journal entry to recognize revenue for the sale of a new membership. Clearly identify revenue or deferred revenue associated with each performance obligation.

2. Assume F&S offers a “Fit 50” coupon book with 50 prepaid visits over the next year. F&S has learned that Fit 50 purchasers make an average of 40 visits before the coupon book expires. A customer purchases a Fit 50 book by paying $500 in advance, and for any additional visits over 50 during the year after the book is purchased, the customer can pay a $15 visitation fee per visit. F&S typically charges $15 to nonmembers who use the facilities for a single day.

1. How many separate performance obligations are included in the Fit 50 member deal? Explain your answer.

2. How much of the contract price would be allocated to each separate performance obligation? Explain your answer.

3. Prepare the journal entry to recognize revenue for the sale of a new Fit 50 book.

P 5–2 Performance obligations; warranties; option

• LO5–2, LO5–4, LO5–5

Creative Computing sells a tablet computer called the Protab. The $780 sales price of a Protab Package includes the following:

· One Protab computer.

· A 6-month limited warranty. This warranty guarantees that Creative will cover any costs that arise due to repairs or replacements associated with defective products for up to six months.

· A coupon to purchase a Creative Probook e-book reader for $200, a price that represents a 50% discount from the regular Probook price of $400. It is expected that 20% of the discount coupons will be utilized.

· A coupon to purchase a one-year extended warranty for $50. Customers can buy the extended warranty for $50 at other times as well. Creative estimates that 40% of customers will purchase an extended warranty.

· Creative does not sell the Protab without the limited warranty, option to purchase a Probook, and the option to purchase an extended warranty, but estimates that if it did so, a Protab alone would sell for $760.

Required:

1. How many performance obligations are included in a Protab Package? Explain your answer.

2. page 285List the performance obligations in the Protab Package in the following table, and complete it to allocate the transaction price of 100,000 Protab Packages to the performance obligations in the contract.

Performance obligation:

Stand-alone selling price of the performance obligation:

Percentage of the sum of the stand-alone selling prices of the performance obligations (to two decimal places):

Allocation of total transaction price to the performance obligation:

3. Prepare a journal entry to record sales of 100,000 Protab Packages (ignore any sales of extended warranties).

P 5–8 Variable transaction price

• LO5–3, LO5–6

Velocity, a consulting firm, enters into a contract to help Burger Boy, a fast-food restaurant, design a marketing strategy to compete with Burger King. The contract spans eight months. Burger Boy promises to pay $60,000 at the beginning of each month. At the end of the contract, Velocity either will give Burger Boy a refund of $20,000 or will be entitled to an additional $20,000 bonus, depending on whether sales at Burger Boy at year-end have increased to a target level. At the inception of the contract, Velocity estimates an 80% chance that it will earn the $20,000 bonus and calculates the contract price based on the expected value of future payments to be received. After four months, circumstances change, and Velocity revises to 60% its estimate of the probability that it will earn the bonus. At the end of the contract, Velocity receives the additional consideration of $20,000.

Required:

1. Prepare the journal entry to record revenue each month for the first four months of the contract.

2. Prepare the journal entry that the Velocity Company would record after four months to recognize the change in estimate associated with the reduced likelihood that the $20,000 bonus will be received.

3. Prepare the journal entry to record the revenue each month for the second four months of the contract.

4. Prepare the journal entry after eight months to record receipt of the $20,000 cash bonus.

·

After reading the background information on revenue recognition in Chapter 5 from

your

Intermediate Accounting

text, use a Word document

to address the following

problems:

o

P 5

-

1, "Upfront Fees; Performance Obligations,"

page 284.

§

Apply your revenue recognition skills to answer the required questions

.

o

P 5

-

2, "Performance Obligations; Warranties; Option," page 284.

§

Apply your critical thi

nking skills and knowledge of revenue recognition

in this problem.

o

P 5

-

8, "Variable Transaction Price,"

page 286.

§

Apply your knowledge of variable transaction pricing in this assignment.

Where appropriate, show the calculations leading to the final solut

ion. Review the

Revenue Recognition Scoring Guide to ensure you complete all grading criteria.

P 5

–

1

Upfront fees; performance obligations

•

LO5

–

4, LO5

–

5

Fit & Slim (F&S) is a health club that offers members various gym services.

Required:

1.

A

ssume F&S offers a deal whereby enrolling in a new membership for $700 provides a

year of unlimited access to facilities and also entitles the member to receive a voucher

redeemable for 25% off yoga classes for one year. The yoga classes are offered to gym

members as well as to the general public. A new membership normally sells for $720,

and a one

-

year enrollment in yoga classes sells for an additional $500. F&S estimates that

approximately 40% of the vouchers will be redeemed. F&S offers a 10% discount on

all

one

-

year enrollments in classes as part of its normal promotion strategy.

1.

How many performance obligations are included in the new member deal?

2.

How much of the contract price would be allocated to each performance

obligation? Explain your answer.

3.

Prepare the journal entry to recognize revenue for the sale of a new membership.

Clearly identify revenue or deferred revenue associated with each performance

obligation.

2.

Assume F&S offers a “Fit 50” coupon book with 50 prepaid visits over the next year.

F

&S has learned that Fit 50 purchasers make an average of 40 visits before the coupon

book expires. A customer purchases a Fit 50 book by paying $500 in advance, and for

any additional visits over 50 during the year after the book is purchased, the customer

can

pay a $15 visitation fee per visit. F&S typically charges $15 to nonmembers who use the

facilities for a single day.

1.

How many separate performance obligations are included in the Fit 50 member

deal? Explain your answer.

 After reading the background information on revenue recognition in Chapter 5 from

your Intermediate Accounting text, use a Word document to address the following

problems:

o P 5-1, "Upfront Fees; Performance Obligations," page 284.

 Apply your revenue recognition skills to answer the required questions.

o P 5-2, "Performance Obligations; Warranties; Option," page 284.

 Apply your critical thinking skills and knowledge of revenue recognition

in this problem.

o P 5-8, "Variable Transaction Price," page 286.

 Apply your knowledge of variable transaction pricing in this assignment.

Where appropriate, show the calculations leading to the final solution. Review the

Revenue Recognition Scoring Guide to ensure you complete all grading criteria.

P 5–1

Upfront fees; performance obligations

• LO5–4, LO5–5

Fit & Slim (F&S) is a health club that offers members various gym services.

Required:

1. Assume F&S offers a deal whereby enrolling in a new membership for $700 provides a

year of unlimited access to facilities and also entitles the member to receive a voucher

redeemable for 25% off yoga classes for one year. The yoga classes are offered to gym

members as well as to the general public. A new membership normally sells for $720,

and a one-year enrollment in yoga classes sells for an additional $500. F&S estimates that

approximately 40% of the vouchers will be redeemed. F&S offers a 10% discount on all

one-year enrollments in classes as part of its normal promotion strategy.

1. How many performance obligations are included in the new member deal?

2. How much of the contract price would be allocated to each performance

obligation? Explain your answer.

3. Prepare the journal entry to recognize revenue for the sale of a new membership.

Clearly identify revenue or deferred revenue associated with each performance

obligation.

2. Assume F&S offers a “Fit 50” coupon book with 50 prepaid visits over the next year.

F&S has learned that Fit 50 purchasers make an average of 40 visits before the coupon

book expires. A customer purchases a Fit 50 book by paying $500 in advance, and for

any additional visits over 50 during the year after the book is purchased, the customer can

pay a $15 visitation fee per visit. F&S typically charges $15 to nonmembers who use the

facilities for a single day.

1. How many separate performance obligations are included in the Fit 50 member

deal? Explain your answer.