This essay focuses on the directions outlined in the case. Allison DePaul goes into the Campus Coffee House and orders a large coffee and a muffin.
ASC 606 Assignment
Spring, 2021
Directions: There are 9 cases included in this assignment. (plus an example case and example solution). For each case follow the directions outlined in the case. Each case incorporates the content covered
in the ASC 606 presentations.
This assignment must be submitted by 9:00 a.m., Thursday, May 20, 2021.
Example Case: On May 6th, 2021 Allison DePaul goes into the Campus Coffee House and orders a large coffee and a muffin. Standalone selling prices are $5 for the
The cashier tells Allison that they are out of muffins but offers a rain check. The offer will cost Allison $7 and she will receive the coffee plus the rain check. The rain check allows Allison to receive a gift card which she may use to purchase a muffin in the future. Allison pays $7 to the cashier.
The cashier gives Allison a gift card for the future purchase of the muffin. The barista pours the coffee and hands it back to Allison. Allison then takes the coffee and the gift card and goes home to study for Acc. 350. Allison returns on June 1, 2021 to redeem the gift card to purchase the muffin.
Apply the requirements of ASC 606/ Revenue from Contracts
with Customers to this case. For each of the five steps fully explain all of the
requirements as they apply to the case.
Solution
Step 2: Identify the performance obligation
There are two performance obligations; Coffee House’s obligation to transfer a cup of coffee to Allison DePaul & honoring the gift card in the future for the purchase of the muffin. These are separate
and distinct since Allison DePaul can benefit from the coffee on its own and the muffin on its own.
Conclusion: There are two distinct performance obligations.
Step 3: Determine the transaction price: There is no variable consideration, financing component, noncash consideration or any consideration payable to the customer. Thus, the transaction price is simply the $7.
Conclusion: The transaction price is $7.
Step 4: Allocate the transaction price to the performance obligation
There are 2 performance obligations so the price must be allocated.
Performance Obligation
Stand Alone Price
Percentage
Purchase Price
Allocation
Coffee
$5.00
5/8 =.625
$7
$4.38
Gift Card/Muffin
$3.00
3/8 = .375
$7
$2.62
$8.00
$7.00
Step 5: Recognize revenue when the performance obligation is satisfied
The Coffee House satisfied each performance obligation at a point in time. The first performance obligation was satisfied when the customer obtained control of the coffee.
on day one because all of the following conditions were met. The second performance obligation will be satisfied when Allison uses the gift card to purchase/receive the muffin.
Performance Obligation: Coffee;
Firstly, The Coffee House has a right to payment for the coffee. .
Secondly, Allison DePaul has the legal right to the coffee.
Thirdly, The Coffee House has transferred the coffee to Allison DePaul.
Further, Allison DePaul has the risks (coffee could get spilled) and rewards of ownership (Allison DePaul can drink the coffee).
► Allison DePaul has accepted the coffee.
The remaining $2.62 is unearned revenue.
Journal Entry:
5/6/21 Cash 7.00
Unearned Revenue 2.62
Revenue 4.38
Performance obligation: Honoring Gift Card/Muffin;
Firstly, The Coffee House has a right to payment for the muffin. (i.e. they will honor the gift card)
Secondly, Allison DePaul has the legal right to the muffin.
Thirdly, The Coffee House has transferred the muffin to Allison DePaul.
Further, Allison DePaul has the risks and rewards of ownership
Further, Allison DePaul has accepted the muffin
When the gift card is presented and the muffin delivered the Coffee House can recognize $2.62 in revenue
Journal Entry:
6/1/21 Unearned Revenue 2.62
Revenue 2.62
Case 1: Economy Appliance Co. manufactures low-price, high values appliances that are in great demand for rental units. Pricing and cost information on Economy’s main products are as follows.
Item
Standalone
Selling Price
Refrigerator
$600
Range
700
Stackable washer/dryer unit
800
Extended Warranty
250
Delivery/Installation
100
each item either individually at the stand alone prices or as a bundle (all three-appliances). The price to purchase all 3 appliances as a group is $1800. A one year basic warranty is include for all appliances.
In addition to the bundled price customers may also choose to purchase an extended warranty for $250 and delivery/installation. Customers may also choose to pick up the appliances or arrange for alternate delivery if they prefer Economy will only install the appliances when they also deliver the appliances.
Assume Economy entered into a signed contract on May 10, 2021 to sell one bundle to DePaul Apartments in Lincoln Park. In