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Need help on performance obligation? Question 1

Business

Need help on performance obligation? Question 1.

Fitt & 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 enroll- ments in classes as part of its normal promotion strategy. 

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

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

c. 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. 

a. HowmanyseparateperformanceobligationsareincludedintheFit50memberdeal? Explain your answer. 

b. Howmuchofthecontractpricewouldbeallocatedtoeachseparateperformanceobligation? Explain your answer. 

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

Question 2

Johnstone Company is facing several decisions regarding investing and financing activities. Address each deci- sion independently.

1. On June 30, 2016, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $10,000 on the purchase date and the balance in five annual installments of $8,000 on each June 30 beginning June 30, 2017. Assuming that an interest rate of 10% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment? 

2. Johnstoneneedstoaccumulatesufficientfundstopaya$400,000debtthatcomesdueonDecember31,2021. The company will accumulate the funds by making five equal annual deposits to an account paying 6% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2016. 

3. On January 1, 2016, Johnstone leased an office building. Terms of the lease require Johnstone to make 20 annual lease payments of $120,000 beginning on January 1, 2016. A 10% interest rate is implicit in the lease agreement. At what amount should Johnstone record the lease liability on January 1, 2016, before any lease payments are made? 

Question 3

Decker Company has five products in its inventory. Information about the December 31, 2016, inventory follows. 

Product: A B C D E

Quantity: 1,000 800 600 200 600

Unit Cost: $10 15 3 7 14

Unit Selling Price: $16 18 8 6 13 

The cost to sell for each product consists of a 15 percent sales commission. 

Required: 

1. Determine the book value of inventory at December 31, 2016, assuming the lower of cost and net realizable value rule is applied to individual products. 

2. Determine the book value of inventory at December 31, 2016, assuming the lower of cost and net realizable value rule is applied to the entire inventory. Also, assuming that Decker reports an inventory write-down as a line item in the income statement, determine the amount of the loss. 

Question 4

Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2016. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2016, was $70 million.

Required: 

1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2016. 

2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2016 (at the effective rate). 

3. Prepare the journal entry by Fuzzy Monkey to record interest on December 31, 2016 (at the effective rate). 

4. At what amount will Fuzzy Monkey report its investment in the December 31, 2016, balance sheet? Why? 5. How would Fuzzy Monkey's 2016 statement of cash flows be affected by this investment?

Question 5:

On January 1, 2016, Instaform, Inc., issued 10% bonds with a face amount of $50 million, dated January 1. The bonds mature in 2035 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually. 

Required: 

1. Determine the price of the bonds at January 1, 2016, and prepare the journal entry to record their issuance by Instaform. 

2. Assume the market rate was 9%. Determine the price of the bonds at January 1, 2016, and prepare the journal entry to record their issuance by Instaform. 

3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt.

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