Case 1: Circuit Fitness (CF) sells treadmills and other related exercise equipment. CF offers customers the following purchase options: 1) purchase a treadmill including a one year basic warranty or 2) purchase a treadmill including the one year basic warranty and an extended 2 year warranty (total of 3 years for warranty coverage). The standalonepricing of the treadmill with the base one year warranty is $1,400 and the standalone pricing of the extended two years warranty is $250.

Assume on October 1^st, 2021 CF entered into a contract with a customer to sell one treadmill with the extended two year warranty for a total sales price of $1,600.CF receives payment from the customer for the treadmill with an extended two year warranty on October 4^th, 2021. The treadmill is delivered by CF on October 8^th, 2021. The warranty is initiated at that time as well by CF. Circuit Fitness's fiscal year is January 1- December 31.

Instructions: 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.

Step 1: Identify the contract with the customer

* Approval and commitment-

* Identification of the rights of the parties-

* Identification of payment terms-

* The contract has commercial substance-

* It is probable that the consideration will be collected-

Step 2: Identify the performance obligation

Step 3: Determine the transaction price:

Step 4: Allocate the transaction price to the performance obligation

Step 5: Recognize revenue when the performance obligation is satisfied

Journal Entry: