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78 Part 1:
Background:
Week 1: A college student walks into the Bier Haus on campus and orders a large plastic cup of beer. The bartender takes the order and says it will cost $5. The student hands the bartender $5. The bartender then pours the beer into a large cup and hands it to the student. The student rushes off to ACCY 304.
Step 1- Identify the contract: The customer walks up to the bartender and orders the beer and the customer must give the bartender money in exchange.
Step 2- Identify the performance obligation: The bartender must give the customer the beer.
Step 3- Determine the transaction price: The beer costs $5 so that is the amount the customer must pay.
Step 4- Allocate the transaction price: There is only one performance obligation so the transaction price is the entire $5 that is due when the customer receives the beer.
Step 5- Recognize revenue when the entity satisfies the performance obligation: It will be satisfied when the customer receives the beer. Then revenue may be recognized.
Cash 5
Sales Revenue 5 Part 2:
Week 2: The same student goes into the Bier Haus and orders a large beer in an Ole Miss thermal beer mug as part of a “drink of campus” campaign. The student plans to use this
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mug daily for refills rather than using plastic cups. The bartender pours the beer into the mug and delivers it to the student. The bartender then collects $7 from the student.
Standalone selling prices are $5 for the beer and $3 for the mug, so the student got a bargain on the combined purchase. The student takes the beer in the new mug and enjoys it while reading the codification.
Step 1- Identify the contract: The customer orders the beer and the mug and the bartender must deliver both items. The customer must pay the transaction price.
Step 2- Identify the performance obligation: The bartender must give the customer the beer and the mug.
Step 3- Determine the transaction price: The entire transaction price is $7.
Step 4- Allocate the transaction price: The beer costs $4.38 and the mug costs
$2.62. They are allocated based on the stand-alone price of the items. They are allocated as follows: beer: ($5/$8) * $7 = 4.38; mug: (3/8) * $7 = $2.62.
Step 5- Recognize revenue when the entity satisfies the performance obligation:
Revenue will be recognized when the customer receives the beer and the mug.
Cash 7
Sales Revenue- Beer 4.38 Sales Revenue- Mug 2.62 Part 3:
Week 3: The same student goes into the Bier Haus bringing in his beer mug and orders a large beer and a pretzel. Standalone selling prices are $5 for the beer and $2 for the pretzel. The bartender tells the student they are out of pretzels. The bartender then offers the student the large beer and a coupon for two pretzels (its typical business practice) for
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$7. The student pays the $7 to the bartender. The bartender gives the student a coupon for two pretzels. The bartender pours the beer into the beer mug and hands it to the student. The student then takes the beer and the coupon and heads to the dorm to study for the upcoming Intermediate accounting exam. The Bier Haus sells a coupon for two pretzels for $3.50. To increase visits, these coupons can be redeemed any date after the date of purchase. The Bier Haus has limited experience with these coupons but, so far, these coupons have always been redeemed.
Step 1- Identify the contract: The bartender must give the customer the beer and must give the customer the pretzels when the coupon is redeemed. The customer must pay the transaction price for all items that day.
Step 2- Identify the performance obligation: The bartender must deliver the items to satisfy the performance obligation. The performance obligation cannot be met until the customer redeems the coupon.
Step 3- Determine the transaction price: The transaction price is $7.
Step 4- Allocate the transaction price: The price is allocated based on the stand alone prices. The price for a beet is $5 and the price for a coupon for two pretzels is $3.50. It is allocated as follows: beer- ($5/$8.50) * $7 = $4.12; coupon for pretzels: ($3.50/$8.50) * $7 = $2.88.
Step 5- Recognize revenue when the entity satisfies the performance obligation:
Revenue will be recognized that day when the customer receives the beer.
Revenue will not be recognized for the pretzels until the customer redeems the coupon.
Cash 7
81 Sales Revenue- Beer 4.12
Unearned Sales Revenue- Pretzel Coupon 2.88
Part 4:
Week 4:
The same student goes into the Bier Haus and orders two pretzels. The bartender takes the order and asks for a $4 payment. The student hands the bartender the coupon. The bartender reviews the coupon, determines its validity, and accepts it as payment. The bartender gives the student the two pretzels. The student then heads off to share the pretzels with a classmate from ACCY 420.
Step 1- Identify the contract: The bartender must give the customer two pretzels in exchange for the coupon.
Step 2- Identify the performance obligation: The bartender must give the customer the pretzels.
Step 3- Determine the transaction price: The transaction price is the coupon which has a value of $2.88.
Step 4- Allocate the transaction price: There is only one performance obligation so the entire coupon applies to this transaction.
Step 5- Recognize revenue when the entity satisfies the performance obligation:
Revenue is recognized when the bartender gives the customer the pretzels.
Unearned Revenue- Pretzel Coupon 2.88 Sales Revenue- Pretzel Coupon 2.88
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