31 Dec Video Planet (“VP”)

1
On July 1, 2018, Apache Company, a real estate developer, sold a parcel of land to a construction company for $3,610,000. The book value of the land on Apache’s books was $1,520,000. Terms of the sale required a down payment of $190,000 and 18 annual payments of $190,000 plus interest at an appropriate interest rate due on each July 1 beginning in 2019.

How much revenue will Apache recognize for the sale (ignoring interest), assuming that it recognizes revenue at the point in time at which it transfers the land to the construction company? (Leave no cells blank – be certain to enter “0” wherever required.)

2
Sarjit Systems sold software to a customer for $95,000. As part of the contract, Sarjit promises to provide “free” technical support over the next six months. Sarjit sells the same software without technical support for $82,500 and a stand-alone six-month technical support contract for $27,500, so these products would sell for $110,000 if sold separately.

Prepare Sarjit’s journal entry to record the sale of the software. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)

3
Aria Perfume, Inc., sold 3,820 boxes of white musk soap during January of 2018 at the price of $120 per box. The company offers a full refund to unsatisfied customers for any product returned within 30 days from the date of purchase. Based on historical experience, Aria expects that 2% of sales will be returned.

How many performance obligations are there in each sale of a box of soap? How much revenue should Aria recognize in January?

4
GoodBuy sells gift cards redeemable for GoodBuy products either in store or online. During 2018, GoodBuy sold $1,030,000 of gift cards, and $890,000 of the gift cards were redeemed for products. As of December 31, 2018, $12,000 of the remaining gift cards had passed the date at which GoodBuy concludes that the cards will never be redeemed.

How much gift card revenue should GoodBuy recognize in 2018?

5
A construction company entered into a fixed-price contract to build an office building for $22 million. Construction costs incurred during the first year were $6 million and estimated costs to complete at the end of the year were $9 million. The company recognizes revenue over time according to percentage of completion.

How much revenue and gross profit or loss will appear in the company’s income statement in the first year of the contract? (Enter your answer in whole dollars.)

6
Ski West, Inc., operates a downhill ski area near Lake Tahoe, California. An all-day adult lift ticket can be purchased for $75. Adult customers also can purchase a season pass that entitles the pass holder to ski any day during the season, which typically runs from December 1 through April 30. Ski West expects its season pass holders to use their passes equally throughout the season. The company’s fiscal year ends on December 31.
On November 6, 2018, Jake Lawson purchased a season pass for $405.

Required:
1. When should Ski West recognize revenue from the sale of its season passes?
2. Prepare the appropriate journal entries that Ski West would record on November 6 and December 31.
3. What will be included in the Ski West 2018 income statement and balance sheet related to the sale of the season pass to Jake Lawson?

· Required 1

When should Ski West recognize revenue from the sale of its season passes?

· Required 2

Prepare the appropriate journal entries that Ski West would record on November 6 and December 31.(If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)

· Required 3

What will be included in the Ski West 2018 income statement and balance sheet related to the sale of the season pass to Jake Lawson?

7
Video Planet (“VP”) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $2,550, sells the remote separately for $150, and offers the installation service separately for $300. The entire package sells for $2,900.

Required:
How much revenue would be allocated to the TV, the remote, and the installation service?