• Buying groceries from a grocery store where your purchase includes milk, eggs, and a loaf of bread.
• Recognizing revenues for a firm that has signed a contract to sell equipment that also includes installation and training, but they are all bundled into one price.
  • The installation and training could be done other firms but if the buyer does so, it doesnt change the selling price.
  • The standalone selling price of the equipment is $1,000,000
  • The standalone selling price for the installation is $25,000.
  • The standalone selling price for the training, which runs for 6 months, is $100,000. However, if the seller does not complete the training on time, the seller needs to pay the buyer back $10,000 per month until the training is completed. The seller believes that there is an 80% chance the training will be completed on time and a 20% chance it will be completed one month late.
  • The customer pays the full price up front for a combination of $500,000 cash and a non-interest bearing, two year note where market rates for similar notes are 6%. The face amount of the note is $674,157.

1. Step 1a Grocery store - Apply the 5 components of a contract to the Walmart example and conclude whether valid contract is created.
2. Step 1 b Equipment sale - Apply the 5 components of a contract to the equipment sale example and conclude on whether a valid contract was created.
3. Step 2a - Performance Obligation Grocery Store Describe the performance obligation(s) and explain how you arrived at your answer.
4. Step 2b - Performance Obligation Equipment sale Describe the performance obligation(s) and explain how you arrived at your answer.
5. Step 3a- Transaction price Grocery Store - How would you determine the transaction price for your purchase?
6. Step 3b - Transaction price Equipment Purchase What are the transaction price(s) for this transaction and how did you arrive at them? Use Excel to calculate the expected value of the training and the final overall transaction price. Submit your file to the Session 12 Excel assignment in Brightspace before class.
7. Step 4a Grocery Store How would you arrive at the transaction prices for each performance obligation?
8. Step 4b Equipment Purchase Use Excel to calculate the transaction prices for each performance obligation and explain how you arrive at them. Include your calculation in the same Excel file you used above.
9. Step 5a Revenue Recognition Grocery Store When would revenue be recognized and why? Apply the five indicators from the text.
10. Step 5b Revenue Recognition Equipment Purchase How much revenue would be recognized for each performance obligation and when? Be prepared to explain your answer.
11. What if the equipment sale contract also included an incentive fee where the seller will get a bonus if they complete the contract early? The ability of the seller to do so is very hard to predict.
12. What if the buyer of the equipment had paid with a plot of land instead of the $500,000 cash? How would that portion of the transaction price be determined?
13. What if the seller had included a discount on the transaction price if the buyer buys another piece of equipment? How would this affect the revenue recognition of the sale?