Chapter 2 - RR: Revenues from Contracts with Customers

Problem 3
1.) December 20, 20X6 - No exchange transaction has taken place yet. Orders were received only from th
Anton Video Tech has received the order but hasn’t fulfilled its performance obligation to deliver
Therefore, control has not been transferred and revenue should not be recognized.

2.) Jan 01, 20x7

Anton’s performance obligation has been satisfied, so Anton can
recognize revenue (at a point in time) and a related account receivable of P1,520,000.

Accounts receivable 1,520,000.00

Sales Revenue 1,520,000.00
To record revenue sales of goods.

Cost of Sales XXXX

Mdse. Inventory XXXX
To record cost of goods sold

3.) Jan 25, 20X7

Cash 1,520,000.00
Accounts Receivable 1,520,000.00

4.) Dec 20, 20x6: None or Zero. Refer to No. 1 above for the explanation.

5.) Jan 01, 20X7 : P1,520,000 - refer to No 2 above

6.) Jan 25, 20x7: None or Zero. Refer to No. 1 above for further discussion.

Problem 4
1.) Jan 1, 20x7:
Cash (105 x P400) 42,000.00
Deferred Revenue 42,000.00

Anton recognizes no revenue on January 1. Rather, Anton recognizes a deferred revenue (a liability) f
with receiving cash prior to satisfying its performance obligation to provide customers with access to t

2.) January 31, 20x7 – December 31, 20x7. At the end of each of the 12 months (revenue is recognized ov
 following the sale, Anton would record the following entry to recognize revenue:

Deferred Revenue (P42,000 / 12) 3,500.00

Service Revenue 3,500.00
To record realized revenue

3.) Jan 01, 20x 7 : No revenue to be recognized

4.) P3,500 per month starting Jan 31, 20x7.

Problem 8
The following items should be taken into consideration by Espi Outsourcing Company:
>    The P48,000 selling commission costs related to obtaining the contract are recognized as an asset.
>    The design services cost of P72,000 and the hardware for the platform of P240,000 are also capitali
>    As the technology platform is independent of the contract, the pattern of amortization of this platfo
>    The migration and testing costs of P156,000 are expensed as incurred; in general, these costs are n

Problem 9 - Contract Asset

1.) Jan 01, 20x7 : No entry

2.) Feb 01, 20x7

Contract Asset 72,000.00
Sales 72,000.00

On February 1, JJ does not record an accounts receivable because it does not have an unconditional
right to receive the P240,000 unless it also transfers Product Y to DD.

3.) March 01, 20x7

Accounts Receivable 240,000.00
Contract Asset 72,000.00
Sales 168,000.00

Problem 10 - Contract Liability

1.) There is no entry required on March 1, 20x7 for the following reasons:
·    Neither party has performed on the contract.
·    Neither party has an unconditional right as of March 1, 20x7.
2.) April 15, 20x7:
Cash 24,000.00
Unearned Sales Revenue 24,000.00

3.) July 31, 20x7

On satisfying the performance obligation on this date, AA Company records the following entry to re

Unearned Sales Revenue 24,000.00

Sales Revenue 24,000.00

Cost of Goods Sold 18,000.00

Mdse. Inventory 18,000.00

Problem 12
(a) Grey would recognize revenue of P2,000,000 at delivery. - COD
(b) Grey would recognize revenue of P1,600,000 at the point of sale. - ON ACCOUNT
(c) Grey would recognize revenue of P928,000 at the point of sale. - INSTALLMENT

Problem 13
The following items should be taken into consideration by Toby’s Store:
As indicated, the standalone price for product 1, 2, 3, and 4 is P21,240, but the bundled price for a
Discount applies to the performance obligations related to products 1, 3, and 4. Accordingly, Toby
discount to product 1, 3, and 4, and not to product 2, as follows:
Allocated Amounts
Product 1, 3, and 4:
Product 1 2,400.00
Product 3 4,800.00 12,600.00
Product 4 5,400.00
Product 2 6,000.00
Total 18,600.00

Problem 16 - Journal Entries

1.) January 2, 20x5:
Cash 300,000.00
Unearned Sales Revenue 300,000.00
 To record upfront payment

December 31, 20x5:

Interest Expense (P300,000 X 6%) 18,000.00
Interest Payable 18,000.00
To record interest on the contract liability

2.) December 31, 20x6:

Interest Expense 19,080.00
Interest Payable (P300K + P18K) x 6% 19,080.00
To record interest on the contract liability

3.) January 2, 20x7:

Unearned Sales Revenue 75,000.00
Interest Payable ([P18,000 + P19,080] X 25%) 9,270.00
Sales Revenue 84,270.00
To record revenue on transfer of product A

Note: Interest will continue to accrue on product B over the next 3 years.

Balances as of January 02, 20x7:

Interest Payable (18,000 + 19,080 - 9,270) 27,730.00
Unearned Sales Revenue (300K - 75K) 225,000.00
eceived only from the customer.
obligation to deliver PSP games-boxes.

revenue (a liability) for P42,000 associated

mers with access to the Kimdrei video games for a year.

enue is recognized overtime or over a period of time)

 ognized as an asset.
0,000 are also capitalized.
rtization of this platform may not be related to the terms of the contract.
ral, these costs are not recoverable.

e an unconditional
following entry to record the sale:

e bundled price for all four products is P18,600.

4. Accordingly, Toby’s Store allocates the
Chapter 2 - RR: Revenues from Contracts with Customers

Problem 20 - Identifying Performance Obligations

1.) Number of performance obligations in the contract: 2
* Delivery of 100 sets of computers is one performance obligation
** The additional insurance is a second performance obligation

The insurance service is capable of being distinct because the bank could choose to receive similar
from another insurance provider, and it is separately identifiable, as it is not highly interrelated with th
obligation of delivering computers, and the seller’s role is not to integrate and customize them to creat
So, the insurance qualifies as a performance obligation.

2.) Value of the Computers: Stand Alone SP Sharing

P14,400 X 100 units = 1,440,000.00 96%
Stand-alone selling price of the insurance:
P600 X 100 units = 60,000.00 4%
Total of stand-alone prices 1,500,000.00 100%

Journal Entry - March 01:

Cash 1,470,000.00
Deferred Revenue - Computers 1,411,200.00
Deferred Revenue - Insurance 58,800.00

3.) March 30, 20x6:]

Deferred revenue–Computers 1,411,200.00
Sales revenue 1,411,200.00

Cost of Goods Sold XXX

Mdse. Iinventory XXX

Note: Fermin recognizes only the portion of revenue associated with passing of the legal title.
The revenue associated with insurance coverage will be earned only when that performance obliga

4.) April 01, 20x6:

Deferred revenue–insurance 58,800.00
Service revenue 58,800.00

Problem 21 - Multiple PO
1.) January 1, 20x7, Anton records the below journal entry at the time of the sale to Robcom Computers
Therefore, the total transaction price of P1,540,000 (P7,700 per system x 200) would be allocated

Price Sharing Allocated Price

PSP Module 7,600.00 95% 1,463,000.00
Subscription 400.00 5% 77,000.00
Total 8,000.00 100% 1,540,000.00

Accounts Receivable 1,540,000.00

Sales Revenue 1,463,000.00
Deferred Revenue - Subscription 77,000.00

Cost of Goods Sold XXXX

Mdse. Inventory XXXX

Note: Anton Video Tech, have the P1,463,000 of revenue associated with the PSP game-box recognized when th
modules are delivered to Robcom Computers on January 1 (point in time), but the P77,000 of revenue associate
the subscriptions is recognized over (over time) the one-year subscription term.

2.) January 31 through December 31, 20x7:

Deferred revenue (P77,000 / 12 = P6,416.67) 6,416.67
Service/Subscription revenue (OT) 6,416.67
To record earned service revenue.

In each of the 12 months (over time) following the sale, Anton Video Tech records the above entry to r
After 12 months Anton Video Tech will have recognized the entire P77,000 of subscription revenue,
and the deferred revenue liability will have been reduced to zero.

3.) January 1, 20x7, revenue amounted to P1,463,000 .

4.) Revenue per month starting January 31 through Dec 31, 20x7, amounted to P6,416.67

Problem 22 - Mulitple PO

Performance Obligations that are distinct and not interdependent

* Bridge Simulator
** Installation
 *** Training

1.) Total Fair Value is P40,740,000 distributed as follows:

PO Fair Value Fraction Allocated FV

Bridge Simulator 40,740,000.00 97% 39,517,800.00
Installation 840,000.00 2% 814,800.00
Training 420,000.00 1% 407,400.00
Total 42,000,000.00 100% 40,740,000.00

2.) November 01, 20x7:

Cash 40,740,000.00
Service Revenue - Installation 814,800.00
Unearned Service Revenue 407,400.00
Sales Revenue 39,517,800.00

Cost of Goods Sold XXXX

Msde. Inventory XXXX

3.) December 31, 20x7:

AA Maritime Industries, Inc recognized the training revenues on a straight-line basis starting on
November 1, 20x7, or P101,850 (P407,400/4 months) per month for four (4) months. Hence, the e

Unearned Service Revenue (P101,850 x 2) 203,700.00

Service Revenue - Training 203,700.00

Note, Total Revenue for the year 20x7 to be reported in the Income Statement would be:

Service Revenue - Installation 814,800.00

Sales Revenue 39,517,800.00
Service Revenue - Training 203,700.00
Total 40,536,300.00

Problem 23 - Contract Modification

1.) Jan 01, 20x5:
Cash 20,000.00
Unearned Service Revenue 20,000.00
 Dec 31, 20x5:
Unearned Service Revenue 20,000.00
Service Revenue 20,000.00

Jan 01, 20x6:

Cash 20,000.00
Unearned Service Revenue 20,000.00

Dec 31, 20x6:

Unearned Service Revenue 20,000.00
Service Revenue 20,000.00

2.) Jan 01, 20x7:

Cash (16,000 + 40,000) 56,000.00
Unearned Service Revenue 56,000.00

Dec 31, 20x7:

Unearned Service Revenue (56,000 / 4) 14,000.00
Service Revenue 14,000.00

Note: In this case, the modification of the contract does not result in new performance obligation.
As a result, the remaining service revenue is recognized evenly over the remaining four years.

3.) Jan 01, 20x7:

Cash (16,000 + 40,000) 56,000.00
Unearned Service Revenue 56,000.00

Dec 31, 20x7:

Unearned Service Revenue 16,000.00
Service Revenue 16,000.00

Important:
Given the change in services in the extended contract period, the services are distinct; the modification
should not be considered as part of the original contract – Tucson recognizes revenue on the remaining
services at different rates. Tucson will recognize P13,333 (P40,000 ÷ 3) per year in the extended period

Problem 26 - Adjusted Market Assessment Approach

 Under the adjusted market assessment approach, Espenilla would base its estimate of the stand-alone
of the club-fitting services on the prices charged by other vendors for those services, adjusted as neces
Because Espenilla typically charges 10% more than what other vendors charge, Espenilla would estima
stand-alone selling price of the club-fitting service as follows:

Charged by other vendors 1,100.00

Multiplied by 110%
Stand-alone SP for Espenilla 1,210.00

Problem 27 - Est. Cost Plus Margin Approach

Under the expected cost plus margin approach, Espenilla would base its estimate of the stand-alone
selling price of the club-fitting service on the P600 cost it incurs to provide the services,
plus its normal margin of P600 × 30% = P180. Therefore,

Cost of Club Fitting 600.00

Normal Margin 180.00
Estimated Stand Alone SP 780.00

Problem 28 - Residual Approach

Under the residual approach, Espenilla would base its estimate of the stand-alone selling price of the
club-fitting services on the total selling price of the contract (P15,000) minus the observable stand-alon
selling price of clubs (P14,000). Therefore, Espenilla would estimate the stand-alone selling price of th
club-fitting services to be:

Selling Price of the Contract 15,000.00

Less: Selling Price of Clubs 14,000.00
Selling Price of the club-fitting services 1,000.00
hoose to receive similar services
hly interrelated with the other performance
ustomize them to create one service or product.

Transaction Price
1,411,200.00

58,800.00
1,470,000.00

the legal title.

hat performance obligation is satisfied
to Robcom Computers with multiple performance obligations.
00) would be allocated as follows:

e-box recognized when those

7,000 of revenue associated with

rds the above entry to recognize subscription revenue.

subscription revenue,
 basis starting on
4) months. Hence, the entry is:

would be:
 rmance obligation.
maining four years.

stinct; the modification

venue on the remaining
in the extended period (20x8–2020).
mate of the stand-alone selling price
vices, adjusted as necessary.
Espenilla would estimate the

te of the stand-alone

one selling price of the

e observable stand-alone
alone selling price of the