Question
Its April 3, 2022, and you walk into your managers office at Pierce & Co., a maker of chemical dyes that has been in existence
Its April 3, 2022, and you walk into your managers office at Pierce & Co., a maker of chemical dyes that has been in existence for over 150 years. Your manager looks up and asks you to have a seat.
You havent been here for very long, so you probably didnt know about our arrangement with Loyolia. Whenever the current monarch of Loyolia dies or abdicates, they have to crown a new one. Now, the royal color of Loyolia is a very specific shade of purple known as Tyrian Indigo, or TI for short, and we have a royal warrant to supply them with this particular hue.
The Queen of Loyolia passed away last October after a 48-year reign. The whole country spent October, November, and December of 2021 in mourning. They were set to crown the new King on January 1, 2020. We got a phone call on November 15 of last year from the Loyolian embassy. They asked us to provide them with TI-infused carpeting, drapery, uniforms for the color guard, and flags, all for the 1/1/22 ceremony, which we did. It was delivered the morning of 1/1/22. They also requested monthly deliveries of felt, silk, and wool, all TI-dyed, at the end of each month for the next three years. We just made our third delivery on March 30.
They agreed to pay us $5 million for the whole deal, and I expect the check in the mail soon. The monthly deliveries are the type we typically make to regular customers, and the amount theyre buying would usually sell for about $100,000. The ceremonial stuff, though... We dont usually make that kind of thing for our other clients, so I dont have a good idea of its normal selling price."
1. How many separate performance obligations are in the contract? 2. How much of the transaction price should be allocated to each obligation, and which of the three transaction price allocation methods is most appropriate here when making that determination? 3. Assuming all obligations are met in a timely fashion, how much revenue should Pierce recognize in 2022? What about 2023?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started