Identifying the Number of Performance Obligations Required

The following separate scenarios a through i describe contracts with performance obligations. Indicate the number of performance obligations in each of the scenarios.

a. Nikey Inc. shipped a pair of tennis shoes to a customer with the terms FOB shipping point. The shipping charges are material to the cost of the shoes. However, Nikey Inc. has elected to classify the shipping and handling costs as contract fulfillment costs.

b. Home Concepts Inc. contracts with a customer to sell and install an underground pool. The pool is operational without any customization or modification. The pool installation could be performed by other service providers.

c. Lance Inc. regularly purchases supplies from Vendor Inc. in the amount of $10,000 per month.If Lance Inc. reaches $80,000 of purchases during the calendar year, Vendor Inc. will provide Lance Inc. a rebate check of 3% on the $80,000 purchases (or $2,400)payable on January 15th of the following year.Hint:Consideration for the current revenue contract depends on a future eventwhether or not the purchase threshold is met.

d. Builders Inc., a contractor, enters into a contract to build an exercise facility for a customer. Builders Inc. is responsible for the overall management of the project and identifies a number of promised goods and services: engineering, site clearance, foundation, procurement, construction, piping and wiring, installation, and finishing.

e. Discovery Inc., a technology company, licenses to a customer its patent rights to an electronic process for five years and also promises to manufacture the electronic component for the customer for two years, while the customer develops its own manufacturing capability. The customer expects no significant updates to the electronic process.

f. Home Concepts Inc. enters into a contract with a customer to provide one of its popular models of outdoor hot tubs. The hot tub is widely available and is not customized in any way. However, the customer has contracted with Home Concepts to order replacement filters every 6 months over the next three years for the maintenance of the hot tub. The filters are not available from other vendors but are sold separately by Home Concepts Inc.

g. Appliances Inc. sells a refrigerator (selling price of $1,200) to a customer, who also receives a free trial size packet of a cleaning solution (standalone selling price of $1.50).

h. Sun Show Inc. sells sunglasses (selling price of $20) to a customer, who also receives a free trial size packet of a cleaning solution (standalone selling price of $1.50).

i. Lance Inc. regularly purchases supplies from Vendor Inc. in the amount of $10,000 per month. If Lance Inc. reaches $80,000 of purchases during the calendar year, Vendor Inc. will lower its selling price by 10% for Lances purchases in the following year. The 10% volume discount is not available to customers outside of this promotion.Hint: Consideration for the current revenue contract is not contingent upon or affected by future purchases.

Solution choices are: One performance obligation, Two performance obligations, Three performance obligations, Four performance obligations, and No performance obligations