Brilliance Holiday Light Services offers commercial and residential lighting services for the holiday season. Brilliance charges a standard rate of $100 per hour. The company also offers a wide variety of holiday lights for purchase separately. In November and December 2017, Brilliance offers customers a holiday package consisting of a box of lights and one hour of service to hang the lights for a total price of $110. The lights in the package normally sell for $35 per box. On November 15, 2017, Brilliance sells 40 light packages. Customers receive the box of lights upon payment and arrange for service on December 5, 2017.
Instructions
(a) Using the five-step model for revenue recognition under the contract-based approach, answer the following questions related to the holiday packages sold by Brilliance Holiday Light Services:
1. Is there a contract? If so, describe the contract.
2. What is Brilliance's performance obligation(s)?
3. What is the transaction price?
4. Is there a need to allocate the transaction price?
5. Has the performance obligation(s) been satisfied? If so, when?
(b) Prepare any journal entries required to record revenue on the appropriate dates. (Round to the nearest dollar.)
TAKING IT FURTHER
Brilliance is considering the addition of a 30-day warranty on the lights offered in its holiday package. What additional information would you require about the warranty before recognizing revenue? Would your answer to part (b) change? Explain.